<PAGE>   1
 
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                  FORM 10-K/A
(MARK ONE)
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
          FOR THE TRANSITION PERIOD FROM                TO
 
                        COMMISSION FILE NUMBER 000-26696
 
                            BIOMETRIC SECURITY CORP.
                   (FORMERLY KNOWN AS SONOMA RESOURCE CORP.)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                            <C>
                    WYOMING                                          PENDING
          STATE OR OTHER JURISDICTION                           (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION                        IDENTIFICATION NO.)
 
        SUITE 1940, 400 BURRARD STREET,                              V6C 3A6
      VANCOUVER, BRITISH COLUMBIA, CANADA                          (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (604) 687-4144
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
<TABLE>
<CAPTION>
TITLE OF EACH CLASS  NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------  -----------------------------------------
<S>                  <C>
        N/A                             N/A
</TABLE>
 
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
                        COMMON SHARES WITH NO PAR VALUE
                                (TITLE OF CLASS)
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  YES [ ]  NO [X]
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [ ]
 
    The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 1999, based upon the closing price of the common stock on
the Vancouver Stock Exchange for such date, was approximately $6,790,252. Shares
of common stock held by each officer and director and by each person who owns 5%
or more of the outstanding common stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
 
               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 
    Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  [ ]
 
    Not Applicable
 
                    APPLICABLE ONLY TO CORPORATE REGISTRANTS
 
    The number of outstanding shares of the Registrant's common stock on March
15, 1999 was 32,501,078.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Not Applicable
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<PAGE>   2
 
CURRENCY AND EXCHANGE RATES
 
     All dollar amounts set forth in this report are in Canadian dollars, except
where otherwise indicated. The following table sets forth (i) the rates of
exchange for the Canadian dollar, expressed in U.S. dollars, in effect at the
end of each of the periods indicated; (ii) the average of the exchange rates in
effect on the last day of each month during such periods; (iii) the high and low
exchange rate during such periods, in each case based on the noon buying rate in
New York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.
 
   
<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                           ---------------------------------------------------
                                            1998       1997       1996       1995       1994
                                           -------    -------    -------    -------    -------
<S>                                        <C>        <C>        <C>        <C>        <C>
Rate at End of Period....................  $0.6504    $0.6999    $0.7301    $0.7323    $0.7103
Average Rate During Period...............   0.6740     0.7197     0.7333     0.7285     0.7321
High Rate................................   0.7105     0.7487     0.7513     0.7527     0.7632
Low Rate.................................   0.6341     0.6945     0.7245     0.7023     0.7103
</TABLE>
    
 
   
     On March 12, 1999, the noon buying rate in New York City for cable transfer
in Canadian dollars as certified for customs purposes by the Federal Reserve
Bank of New York was $0.6564 U.S. = $1.00 Canadian.
    
<PAGE>   3
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<S>               <C>
PART I
Item 1..........  Business
Item 2..........  Properties
Item 3..........  Legal Proceedings
Item 4..........  Submission of Matters to a Vote of Security Holders

PART II
Item 5..........  Market for Registrant's Common Equity and Related
                  Stockholder Matters
Item 6..........  Selected Financial Data
Item 7..........  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations
Item 7A.........  Quantitative and Qualitative Disclosures About Market Risk
Item 8..........  Financial Statements and Supplementary Data
Item 9..........  Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure

PART III
Item 10.........  Directors and Executive Officers of the Registrant
Item 11.........  Executive Compensation
Item 12.........  Security Ownership of Certain Beneficial Owners and
                  Management
Item 13.........  Certain Relationships and Related Transactions

PART IV
Item 14.........  Exhibits, Financial Statement Schedules, and Reports on Form
                  8-K
</TABLE>
    
<PAGE>   4
 
                                     PART I
 
ITEM 1  BUSINESS
 
     Certain of the information contained in this Form 10-K constitutes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and other applicable laws or regulatory policies.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results to be materially different
from any future results, performance or achievements expressed or implied by
such forward looking statements. Although the Company has attempted to identify
important factors, including those listed under "Risk Factors" below, that could
cause actual results to differ materially, there may be other factors that can
cause actual results not to be as anticipated, estimated or intended. There can
be no assurance that such statements will prove to be accurate as actual results
and future events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue reliance on
forward-looking statements.
 
OVERVIEW
 
     Biometric Security Corp. (the "Company") was incorporated by registration
of its memorandum and articles under the Company Act (British Columbia) on
January 16, 1979 under the name "North American Power Petroleums Inc.". The
Company changed its name to "Sonoma Resource Corp." effective as of January 5,
1990. The Company's original articles were replaced with a new set of articles
effective as of July 19, 1996.
 
     Effective as of November 10, 1998, the Company was continued to the State
of Wyoming, U.S.A., changed its name from "Sonoma Resource Corp." to "Biometric
Security Corp." and the Company's memorandum was replaced with new Wyoming
articles of continuance. Effective as of November 12, 1998, the Company
increased its authorized capital to an unlimited number of common shares.
(Please see Item 3 -- Legal Proceedings regarding certain U.S. securities
matters and the Company's current plans to continue back to British Columbia.)
 
     The Company's head and principal office is located at Suite 1940, 400
Burrard Street, Vancouver, British Columbia, Canada, V6C 3A6. The Company's
registered office and address for service in British Columbia is care of its
solicitors, Catalyst Corporate Finance Lawyers, Suite 1100, 1055 West Hastings,
Vancouver, British Columbia, Canada V6E 2E9. The Company's registered office and
address for service in Wyoming is care of its Wyoming attorneys, Hathaway,
Speight & Kunz, LLC, 2515 Warren Avenue, P.O. Box 1208, Cheyenne, Wyoming,
U.S.A. 82003-1208.
 
     As at December 31, 1998, the Company had a total of six subsidiaries
related to its Argentinean resource activities (see Business of the
Company -- Historical Operations). The Company plans to sell or otherwise
dispose of these subsidiaries. The particulars regarding these subsidiaries are
as follows:
 
<TABLE>
<CAPTION>
                                                    DATE OF         JURISDICTION OF     PERCENTAGE
NAME OF SUBSIDIARY                               INCORPORATION       INCORPORATION     OWNERSHIP(1)
------------------                             -----------------    ---------------    ------------
<S>                                            <C>                  <C>                <C>
Sonoma Resource de Argentina S.A.............  November 30, 1995       Argentina           100%
Castano S.A..................................     August 7, 1996       Argentina           100%
Castano Mining (Barbados) Ltd................       June 6, 1996        Barbados           100%
Cerro Toro S.A...............................     August 5, 1996       Argentina           100%
Cerro Toro Mining (Barbados) Ltd.............       June 6, 1996        Barbados           100%
Sonoma Resource (Bermuda) Ltd................       June 5, 1996         Bermuda           100%
</TABLE>
 
---------------
(1) Represents the percentage of voting securities held. None of the
    subsidiaries has any non-voting securities outstanding.
 
   
Of these subsidiaries, only Sonoma Resource de Argentina S.A. has assets. The
others have no operations and only insignificant assets, if any.
    
 
                                        1
<PAGE>   5
 
     In June, 1998, the Company made an investment in Biometric Identification,
Inc. ("BII"), a private California corporation. This purchase represents a
significant change for the Company, which is shifting from the resource business
into the technology industry. See Business of the Company below for a full
discussion of the BII investment.
 
BUSINESS OF THE COMPANY
 
  Historical Operations
 
     The Company, historically, had been in the mineral exploration business. As
at December 31, 1998, the Company still owned 100% of the Cerro Toro Project
located in the San Juan Province of Argentina and the Apeleg Claim Block located
in the Chubut Province of Argentina. In light of the state of the precious
metals markets, the Company made a strategic decision to leave the resource
sector. It significantly reduced its staff and overhead in Argentina and cut
back on its exploration activities in 1998.
 
     In November 1998, the Company reached an agreement to sell up to a 100%
interest in 9 mineral properties comprising 93,709 hectares, located in the San
Juan, Chubut, and Santa Cruz provinces in Argentina to Inlet Resources Ltd.
("Inlet"). In order to acquire a 90% interest in the properties, Inlet must pay
US$750,000 and issue 300,000 shares to the Company over a three year period and
complete a US$2,150,000 work commitment. Inlet may acquire the remaining 10% by
the payment of US$2,000,000 to the Company. A formal agreement was signed by the
parties on January 21, 1999, and was approved as at February 15, 1999, by
Canadian regulatory authorities. To March 1, 1999, the Company received
US$150,000 and 100,000 common shares of Inlet in accordance with the terms of
the agreement. The Company does not anticipate acquiring any new resource
properties.
 
  Current Activity
 
     On June 12, 1998, the Company entered into an agreement (the "BII
Agreement") to acquire up to US$5,000,000 of convertible debentures to be issued
by Biometric Identification, Inc. ("BII"), a private California corporation. The
Company's principal business now consists of its investment in BII.
 
     BII is currently controlled by Arete Associates ("Arete") which is also a
private California corporation. Arete has been a Department of Defense research
and development contractor for over 20 years specializing in sensor systems and
pattern recognition software development. Many of Arete's mathematicians and
physicists helped develop the BII fingerprint identification technology. This
technology has been exclusively licensed to BII by Arete. Pursuant to the BII
Agreement, the Company proposes to invest up to US$5,000,000 in convertible
debentures to be issued by BII. If all such convertible debentures are acquired
and all rights of conversion are exercised, the Company will hold approximately
45% of the issued shares of BII. Approximately 83% of the issued shares of BII
are currently held by Arete. The remaining shares are held primarily by
employees of BII and Arete.
 
     As of March 15, 1999, the Company has purchased US$2,875,000 of the
convertible debentures of BII pursuant to the BII Agreement. Under the BII
Agreement, as amended, the Company can acquire another US$2,125,000 of
convertible debentures bringing the total investment in BII to US$5,000,000. If
the Company does not purchase all of the convertible debentures in a particular
tranche by the outside purchase
 
                                        2
<PAGE>   6
 
date specified in the following table, the Company will lose its right to
purchase additional convertible debentures.
 
   
<TABLE>
<CAPTION>
DESIGNATION                                   PRINCIPAL AMOUNT        OUTSIDE PURCHASE DATE
-----------                                   ----------------    ------------------------------
<S>                                           <C>                 <C>
Tranche A & B...............................    US$  350,000      Previously advanced
Tranche C...................................    US$  900,000      Advanced on June 12, 1998
Tranche D...................................    US$  500,000      Advanced on August 12, 1998
Tranche E:
  First advance.............................   US$    75,000      Advanced on November 13, 1998
  Second advance............................    US$  250,000      Advanced on November 25, 1998
  Third advance.............................    US$  250,000      Advanced on December 18, 1998
  Fourth advance............................    US$  550,000      Advanced on January 29, 1999
  Fifth advance.............................    US$  125,000      April 16, 1999
Tranche F...................................    US$  500,000      April 16, 1999
Tranche G...................................   US$ 1,500,000      May 12, 1999
                                               -------------
     Total:.................................   US$ 5,000,000
                                               =============
</TABLE>
    
 
   
     The convertible debentures will bear interest at the lowest interest rate
imputed under the U.S. Internal Revenue Code and, if not converted, will become
payable five years after the closing date of the first acquisition which was
June 12, 1998. Interest is payable annually, in arrears, on the unpaid balance.
    
 
     The Company may exercise its rights of conversion at any time. The
convertible debentures will automatically be converted on the earlier of an
initial public offering by BII or the acquisition of BII by a third party. If
all rights of conversion are exercised, the Company will be entitled to receive
the percentages of issued common stock of BII specified in the following table.
 
<TABLE>
<CAPTION>
                                                              % UPON CONVERSION
DESIGNATION                                                   OF ENTIRE TRANCHE    AGGREGATE %(1)
-----------                                                   -----------------    --------------
<S>                                                           <C>                  <C>
Tranche A, B & C............................................        20.00%             20.00%
Tranches D & E..............................................        13.33%             33.33%
Tranches F & G..............................................        11.67%             45.00%
</TABLE>
 
---------------
(1) Total percentage for the Tranche and all prior Tranches.
 
     While the Company is not legally obligated to purchase additional
convertible debentures or to exercise its rights of conversion, the Company's
intention is to acquire all of the convertible debentures under the BII
Agreement and, in due course, if business conditions warrant, to exercise all of
the conversion rights. If all of the convertible debentures are purchased and
all rights of conversion are exercised, the Company will ultimately hold 45% of
the issued shares of the common stock of BII. The interest of the Company may be
subject to dilution resulting from the issuance of shares on exercise of options
granted under BII's stock incentive plan and may be subject to additional
dilution resulting from future grants of stock options or under certain
additional financings which may be undertaken by BII.
 
     The parties have also agreed that BII may be merged into or acquired by the
Company. The parties have agreed to examine this from a tax, securities and
commercial perspective to determine the best structure for this potential
merger.
 
     This acquisition was arranged by Rand Edgar Capital Corp. ("RECC"), a
private company controlled by the spouses of Brian Edgar and William Rand. Mr.
Rand is a director of the Company. RECC originally entered into a memorandum of
understanding with BII and with Arete dated March 18, 1998, amended and replaced
May 20, 1998 (collectively the "MoA"). RECC assigned its interest in the MoA to
the Company on May 21, 1998 in exchange for a fee of US$145,000, plus
reimbursement of its expenses. As of June 12, 1998, RECC had elected to take its
fee in the form of 715,575 common shares of the Company to be issued at a price
of $0.30 per share. These shares were to be issued in pro rata tranches in
accordance with the tranche
 
                                        3
<PAGE>   7
 
advances being made by the Company to BII. These finders fee shares were
actually issued in the form of special warrants at a price of $0.30 per special
warrant. Each special warrant is exercisable without the payment of any
additional consideration into one common share of the Company. As at December
31, 1998, the Company had issued 250,450 shares to RECC under the terms of this
agreement. In addition, the Company has allotted (but not yet issued) an
aggregate of 161,005 shares for issuance to RECC in respect of debentures
purchased on November 13 and 25, 1998, December 18, 1998, and January 29, 1999.
 
  Overview of BII's Operations
 
     Biometrics is the science of identifying an individual through his/her own
unique personal physiology. Examples of the range of biometric-based products
are fingerprint readers, hand geometry, eye scanners and face-recognition.
Behavioral-based devices include voice response and keystroke systems.
 
     BII is focusing on the commercial market for the supply and integration of
biometric fingerprint identification technology. Under a license agreement made
between BII and Arete, Arete's fingerprint recognition technology has been
exclusively licensed world-wide to BII. The license agreement provides that BII
will pay to Arete a license fee of US$0.10 per unit for the first 2,500,000
products and US$0.05 per unit for the next 20,000,000 products. Upon the payment
of US$1,250,000 of royalties having been made, Arete will transfer ownership of
the intellectual property outright to BII.
 
   
     Fingerprint biometrics has specific applications within many different
markets, and includes both closed and open systems. Examples of a closed system
are time and attendance control and security access. Examples of open systems
are Internet security and electronic commerce. The Company has been informed
that BII's strategy has been to initially focus upon the time and attendance and
access control markets where a need exists.
    
 
     BII's products allow the ability to register/enroll a fingerprint of an
individual, save a template of it, and then at a later time verify the identity
of the individual by retrieving the fingerprint template and performing a
comparison with a newly obtained fingerprint image. Generally, competitive
fingerprint identification systems are based on algorithms that read "minutia"
(imaging points of interest on the fingerprint) which can be fooled by temporary
alterations such as changes to the finger due to cuts or swelling. This could
result in a loss of accuracy, especially over time. BII's products utilize a
full finger Pattern Recognition fingerprint verification software system,
exclusive to BII. This system images the entire two-dimensional ridge pattern of
the fingerprint, and provides accuracy over time at the highest security level.
BII's products are generally not affected by temporary changes to the finger,
and provide a response time of less than one second, an enrollment time of less
than five seconds, and an accuracy rate of less than one per thousand of false
positive and less than one per thousand false negative.
 
     BII's product line of biometric fingerprint identification products
includes products which can be deployed in stand-alone mode or as part of a
larger application. BII has recently begun marketing the Veriprint 2100 for
access control and time and attendance applications. This system has a variety
of applications and is being used by the Venezuelan Legislature in verification
terminals that allow members of the Chamber of Deputies and Senate, and their
authorized surrogates, to vote electronically from their desks.
 
     Also recently introduced was the Veriprint 1100 Fingerprint Identification
System. The Veriprint 1100 is a silicon sensor based system incorporating BII
software. Applications include safeguarding Internet access, intranet access,
local area networks, electronic commerce and other sensitive data applications.
 
     Many competitive products rely on Application Specific Integrated Circuit
("ASIC") technology which is less flexible than other technologies and can be
harder to integrate with external applications. BII has developed a fully
programmable device architecture which facilitates ease of integration with
external original equipment manufacturers ("OEM") and value added retailers
("VAR"). A complete application software development kit has been constructed so
that any VARs and integrators can easily interface their software with BII's
products. The software is Windows 95/NT compatible and is provided in the form
of a complete dynamic link library ("DLL"), allowing the user to customize all
aspects of the BII product line such as, for example, using BII's hardware and
alogrithms and the user's time and attendance software.
 
                                        4
<PAGE>   8
 
     BII was incorporated in 1995 as a subsidiary of Arete. To date, more than
US$4,000,000 has been invested by Arete in BII for research and development and
working capital. The audited Statement of Operations for BII's fiscal year ended
December 31, 1997 shows revenues of US$494,000 and a net loss of US$1,332,000.
The unaudited Statement of Operations for the eleven month period ended November
30, 1998 shows revenues of US$1,066,051 and a net loss of US$3,288,441. With the
additional capital from the Company and from Arete, BII plans to increase its
marketing and engineering efforts.
 
     BII has a total of 35 employees and consultants. (See Item 10 -- Management
of BII).
 
  The Products
 
     BII's fingerprint identification system is small, versatile and
inexpensive. To fully understand BII's products, BII's management has stated
that it is necessary to see the improvements BII has made in two areas:
verification (i.e., comparison and decision making) software and programmable
network interface (hardware). Management of BII believes that verification
software is the critical component in biometric devices. BII's software uses
sophisticated algorithms resulting in accuracy and reliability while utilizing
cost effective hardware.
 
     Many fingerprint verification software techniques involve the use of
minutia points. The BII technique does not use individual points, but rather
images the entire two dimensional ridge structure of the fingerprint. The print
presented for comparison is processed so that differences between it and the
stored template are corrected mathematically within program parameters.
Distortion, dislocation, rotation, sensor noise, finger swelling and scarring
are all compensated for as much as possible in the algorithm. Only after all of
these compensatory techniques are performed, and the two print images still do
not match, is the candidate print declared dissimilar to the template.
 
     Management of BII believes that BII's method of handling these potential
distortions in the fingerprint is a key aspect of its technology. Distortion
handling allows BII's products to identify and verify fingerprints over extended
time horizons. Minutia-based systems often have problems in this area, and over
time become increasingly unreliable as the minutia points on the fingerprint
change over time. This unreliability can cause a requirement to re-enroll and
also increase the probability of a false rejection.
 
     BII has integrated its fingerprint algorithms and software with newly
introduced solid state technology and is presently working with the 5 major
vendors, Veridicom, Inc. ("Veridicom"), ST Micro, CSF Thomson, Siemens, and
Authentic. Management of BII believes that BII was the first company to complete
this integration into a self-contained system the size of a business card. BII's
management believes that many of the other biometric companies like Identix,
Inc., Identicator Technology ("Identicator"), and Sony Corp. ("Sony") may take
longer to integrate their products given their ASIC approach which typically
represents software frozen into silicon. Management of BII believes that the
flexibility and programmable design of its products is a key area of BII's
technology.
 
     BII has also completed product integration with a number of other
manufacturers including Radionics, Inc. ("Radionics"), Westinghouse Security
Electronics ("Westinghouse"), Chubb Security, Simplex, Northern Computer and
Apollo. Management of BII is currently in discussion with many other companies
with the intention of integrating their products.
 
   
     BII's Veriprint 2100 is a complete system consisting of a processor,
scanner, terminal and BII's proprietary patent pending software. The Veriprint
2100 is a self-contained system geared toward applications such as time and
attendance and access control. To date, over 2,000 Veriprint 2100's have been
installed in customer locations. This product sells for less than US$900 retail.
    
 
     BII released its second product, the Veriprint 1100, in June 1998. The
Veriprint 1100 is a desktop fingerprint verification system that uses the
computer's processor/memory and is designed to integrate for PC or network
security applications. This product sells for less than US$340 retail.
 
     BII hopes to introduce the Veriprint 1500 in the second quarter of 1999.
The Veriprint 1500 is to be a hybrid of the Veriprint 1100 and the Veriprint
2100. The Veriprint 1500 will contain a limited amount of
 
                                        5
<PAGE>   9
 
storage for the fingerprint templates. Additionally, BII expects that it will
generate revenues from the license of its proprietary fingerprint algorithms to
large OEM's in such areas as: smart card technology, electronic commerce and
computer equipment.
 
     BII has developed a fully programmable device architecture which
facilitates ease of integration with external OEM and VAR applications, in
contrast to competitive products which rely on ASIC technology. Again, BII's
management believes that ASIC technology is less flexible than other
technologies and can be harder to integrate with external applications. BII's
management believes that this is a significant advantage for BII in its
marketing efforts.
 
     BII has developed a complete application software development kit so that
VARs and integrators can easily integrate their products with BII's products.
BII's software, which is Windows 95/NT compatible and is provided in the form of
a complete DLL, allows the user to customize a number of aspects of the BII
product lines.
 
     Management of BII believes that its fingerprint verification software is
one of the best in the industry (less than 1 per thousand false positive and
less than 1 per thousand false negative). It has one touch enrollment (less than
5 seconds), relatively fast response time (less than 1 second), and has a
programmable architecture which allows rapid integration with the end
applications of OEMs and VARs.
 
     In 1997, BII introduced its first Biometric fingerprint product based on
optical sensor technology, and recently introduced its second generation optical
device in October, 1998. There are over 2,000 units installed in various sites
around the world. Additionally, BII believes it has become an acknowledged
expert on "silicon chip" based fingerprint sensor technology which appears to be
the next generation sensor, replacing optics over time. BII has a "virtual
manufacturing" strategy pursuant to which BII utilizes sub-contractors to
assemble parts. BII has also established a strategic relationship with
PrimeTech, an ISO 9000 qualified manufacturer, and BII has developed three major
products:
 
     1.  Veriprint 2100 Optical Terminal ("V2100") -- Complete biometric
terminal with case, keypad and LED screen.
 
     - The V2100 is presently an "optically based sensor" product. BII hopes to
       achieve "silicon sensor" integration during 1999 which is superior to an
       optically based sensor product because through the use of silicon, the
       product can be made much smaller.
 
     - The V2100 sells for approximately US$800 to US$900. The V2100 has been in
       existence for over one year and there are approximately 2,000 already
       deployed for time and attendance and access control applications.
 
     2.  Veriprint 1100 Silicon Sensor, Integration Component ("V1100").
 
     - The V1100 integration component features what BII believes to be the
       first ever use of "silicon sensor" technology in a self-contained
       fingerprint system.
 
     - The V1100 is very small and provides a form factor which can be easily
       integrated into OEM products (readers, keyboards, etc.). This product is
       smaller than a business card and no thicker than a half dollar.
 
   
     - The V1100 features on-board verification and template storage for
       fingerprint data from up to 1500 people and on-board Programmable Digital
       Signal Processor.
    
 
   
     3.  BII Fingerprint Software Suite -- Crucial component, featuring a new
decision algorithm "Ridge Recognition" and a complete software suite for the
operation and management of a fingerprint biometric system. This suite features
the following:
    
 
     - Ridge Recognition Algorithm -- BII's "patent pending" fingerprint
       verification algorithm. BII believes that recognition algorithm is the
       key decision engine for a biometric system and a crucial area of
       competitive advantage for BII. BII has developed what it believes is an
       entirely new approach to fingerprint recognition focusing on ridge
       patterns instead of minutia.
 
                                        6
<PAGE>   10
 
     - Fake Finger Detection -- BII believes that a crucial issue for biometric
       systems is their ability to respond to challenges to security. BII
       believes it has developed a technology solution which can detect a
       latex/rubber fake finger. To date, BII believes this program is unique
       and will provide significant advantage in the field.
 
     - Other Features of the Suite -- Encryption, "One to Many" (which utilizes
       a data base search) and Application Software Interface.
 
  Market for Products
 
     Biometrics is the use of unique physiological traits or behaviors to
distinguish one person from another. The industry started with forensic
applications using fingerprints for law enforcement and government security
applications. In the last 30 years, electronic fingerprinting has evolved as an
alternative storage and retrieval medium to paper and ink.
 
     Today, biometrics is a US$500 million industry (Yankee Group, 1995 Study),
and a US$1 billion market if one includes sales of related computer systems
(Benjamin Miller, Editor, Personal Identification News). The biometric industry
can be divided into the following major types: face recognition, hand geometry,
iris/retina scanning, voice print, signature recognition and fingerprint
scanning. Of these options, BII's management believes that the fingerprint
scanning option is the most widely accepted.
 
     Face recognition is a relatively inexpensive option and is considered easy
to use. However, management of BII believes that face recognition can be
considered intrusive, may be subject to physical conditions such as available
light which affect function and usually has a large template size. Face
recognition has been used in governmental applications in the U.S., such as in
welfare agencies and the departments of motor vehicles. Historically, face
recognition has been a very small portion of the private biometric marketplace.
 
     Hand geometry systems are moderately expensive biometric solutions. Hand
geometry was one of the earliest biometric approaches because it was considered
relatively easy to use. Conversely, BII's management believes that hand geometry
is generally considered slow and less accurate than fingerprint scanning. In
management's view, the equipment utilized in hand geometry systems is relatively
large and in many cases easily vandalized. Management of BII believes that over
time hand geometry will decrease in market importance as fingerprint technology
continues to improve.
 
     BII's management believes that iris/retina scanning systems are accurate
biometric solutions and have been used in very high security applications such
as nuclear power plants. This option is fairly expensive to implement and
suffers from user acceptance issues. BII is aware of numerous banks which have
recently been evaluating this option for their automated teller machine ("ATM")
security. ATMs are an example of a system which, in BII's management's view,
could justify a high cost per installation. BII's management believes that
consumer acceptance is still a very open issue and that in the long run, this
biometric option is not anticipated to grow substantially.
 
     Voice recognition systems are relatively inexpensive and have been applied
in remote access applications such as remote banking. However, BII's management
believes that voice recognition is slow in application and can be affected by
physical condition or emotional state.
 
     Signature recognition systems are relatively inexpensive and have been used
primarily in document processing applications in both the financial and
insurance industries, as well as government applications. However, BII's
management believes that the accuracy of signature recognition systems can be
affected by emotional or physical condition and their overall accuracy has been
questioned.
 
     BII's management believes that the fingerprint identification segment is
the largest and most widely accepted method of biometric identification. BII has
prepared its business plan on the assumption that the fingerprint identification
segment will experience considerable growth as applications are developed
(access control, network security, electronic commerce, etc.) which match up
well with the characteristics of this option. BII's management believes that
there is considerable investment being made in this area and, with chip options
becoming available, the ability of this segment to improve price and overall
function is being
 
                                        7
<PAGE>   11
 
greatly increased. Fingerprint identification systems are considered by BII's
management to be very accurate and the cost to deploy the application is
believed to be decreasing in line with broad market needs. Management believes
that fingerprint identification technology has historically suffered from
inaccuracy and problems with false rejections and acceptances and that consumer
acceptance of this option is crucial to long term market growth.
 
     BII's management believes that there are many biometric applications for
electronic fingerprint devices with long term prospects, including point of sale
devices, electronic commerce and inter/intranet security. BII's management
believes that certain of the major credit card companies are exploring the use
of fingerprint identification technology using "open systems" which require
complex solutions because there are many members and multiple locations. In
BII's management's view, closed systems, where there are a finite number of
users and the database can be stored locally, are more easily and affordably
solvable today. Therefore, BII's management is focusing on closed system
commercial applications which it believes have the most market potential in the
short term (one to two years). These include time and attendance, access control
and the network security markets.
 
     Biometrics, specifically hand geometry and fingerprint, have been deployed
in the time and attendance market for several years. To date, the performance
errors of the early devices and relatively high price has limited the
introduction of biometrics in a major way into this market. Recent advances in
fingerprint biometrics have given this market a solution with price and
performance characteristics which are allowing players in the market to actively
launch biometrics applications in 1998/1999. Based on BII's discussion with some
of the largest time and attendance companies in the U.S., BII believes that a
significant portion of this market will begin using biometric products.
 
     One of the primary motivators for the deployment of biometrics in this
market is the reduction of fraud associated with "buddy punching" (clocking in
and out for an absent co-worker). According to market researcher Frost and
Sullivan (1997, World Biometrics Market), companies lose over US$1 billion every
year because of this problem. Buddy punching is relatively easy because cards
and person identification numbers ("PINs") are not intrinsically linked to the
card holder. Biometric information can also be interfaced with a company's
payroll and productivity systems and can present data in a more accurate, secure
and efficient fashion.
 
     The physical security market can be divided into three broad segments:
perimeter security, internal security and access control. According to Frost and
Sullivan (1997), in the U.S. this market generated revenues of over US$2 billion
in 1997. The largest segment of the physical security market is the "electronic
access control" segment which was estimated at US$750 million in 1997. To date,
the introduction of biometric devices in this market has been limited, given the
overall size of this marketplace, largely due to cost and functionality. The
electronic access control market is dominated by card and proximity reader
devices placed on entries to control and limit access.
 
     Based upon BII's discussions at trade shows and with access control
companies, it appears that if biometric solutions could approach the cost level
of card and proximity reader devices, then a biometric solution might start to
become a primary application, rather than a niche application. BII has designed
its Veriprint 1500/2100 product line to meet these cost levels. Additionally,
the administration of card reader systems is more complicated than a biometric
solution due to the need to record and physically control the cards in card
reader systems.
 
     The access control market is largely comprised of smaller regional access
control companies combined with a selected number of larger companies. The
larger companies include Card Key, Westinghouse, Amana Appliances and Radionics.
BII has completed, or is in the process of completing, product integration with
all of these companies except Card Key, which has not yet decided to adopt
biometrics. BII's management believes that biometrics makes sense in this market
segment as PIN codes, keys and slide cards can get lost or stolen and may be
problematic in the event of personnel turnover. Applications for access control
are diverse and include corporate offices, sensitive government locations, law
and other professional firms, hospitals, banks, correctional institutions,
airports and educational institutions.
 
                                        8
<PAGE>   12
 
     BII's management believes that U.S. companies spend large amounts of funds
annually on computer security for personal computers ("PCs"), networks and
databases. In a recent survey of management information systems administrators
by Frost and Sullivan (1997), 54% of the respondents said their company suffered
a loss related to information security and disaster recovery. More than 25% of
the respondents experienced losses of nearly US$250,000. Recent trends and
strategic decisions made by systems integrators and manufacturers in the
computer industry imply a growing potential security market.
 
     A primary market application for biometrics is the protection of PC and
network access (NT or Novell) through a mouse-like device (or eventually, as an
integrated component into the computer/keyboard itself). This is a market
opportunity for biometrics where interest appears to be increasing. BII believes
that this is a market area where competitive products are surfacing.
 
     There are a significant number of PCs installed in corporations worldwide
and connected to networks. As the network computer continues its penetration in
the marketplace, the number of "network" connected units is expected to grow.
These networked units include not only NT and/or Novell networks, but also units
tied to a company's intranet.
 
     The network security market is expected by BII to be one of the largest of
the biometric markets. BII believes that the installed base is extensive and the
increasing reliance on computers, local and wide area networks,
internet/intranets and extranets creates a potential pool of customers. The new
network computer is geared for access to a central database (the 90's version of
the mainframe) and increasingly it will be important to know exactly who is on
the network.
 
   
     There are estimated to be over 40 million PCs in U.S. households (home
offices, etc.), with approximately 7.5 million new PCs sold into the home market
each year (U.S. Consumer Electronic Association). BII does not expect the home
PC market to be as large a market as the corporate marketplace. However,
protection of the home PC and its information is expected to increase as people
become increasingly electronically focused. As with other new technologies, the
proving grounds for biometrics will be in the corporate marketplace. As these
devices achieve acceptance, BII believes that it is reasonable to expect that
over time these products will be deployed in the home market and that retail
distribution will be achieved.
    
 
     BII is presently working with Radionics, integrating BII biometrics into
their access control and intrusion systems. Radionics is one of the largest home
security companies in the United States.
 
     In U.S. government applications, public agencies use biometrics to verify
the identity of persons who wish to receive a service from the agency or pass
through an application process. Examples include welfare agencies, departments
of motor vehicles, and the U.S. Immigration and Naturalization Service. BII
believes that there is interest in this area from governments due to concerns
about fraud.
 
  Marketing Plan
 
     BII's goal is to become an industry leader in the market for
speed-dependent, closed system commercial verification applications such as time
and attendance and access control. BII intends to position itself strategically
to compete in the long term through strategic alliances with various companies
in the industry. By providing quality fingerprint technology in the time and
attendance and access control markets, BII intends to forge a solid reputation
and list of references which can be leveraged as it competes for longer term,
strategic markets.
 
     BII has defined its target markets, being the time and attendance and
access control markets. In each of these markets, BII has focused on key
customers and actively sought alliances. In BII's view, the alliance process
involves one of validating technology. Once the alliance has been created, the
next step would be for BII to work together with its allies to integrate their
products. This integration process is time consuming and expensive.
 
     In competitive comparisons, BII believes its product has performed
favorably. BII believes that this favorable performance, combined with
aggressive pricing, has enabled it to be effective in securing
 
                                        9
<PAGE>   13
 
relationships with several large companies. Once the integration process is
complete, BII hopes that the OEMs will then introduce its products into their
distribution channels.
 
     BII has been executing its sales strategy through its sales team and has
been actively marketing its product since September of 1997. In this time, it
has developed a list of alliances that includes Westinghouse, Panasonic
(Matsushita Electric Corporation of America), Radionics, Veridicom and Kronos
Incorporated ("Kronos").
 
     BII is targeting both large and small companies. In its view, the larger
companies offer long term sales potential. By comparison, the innovative smaller
VARs and OEMs are more often the first to adopt new technologies and create
early stage demand from consumers. In BII's view, these early adopters take
business from industry leaders which creates incentive for the big companies to
follow suit. BII is also going to target systems integrators and large
consulting firms that thrive on introducing new technologies to their customers.
 
     In BII's experience, the sales/adoption cycle for integration of a
biometric solution into VAR/OEM end applications varies, but is approximately
four to six months.
 
     To date, BII has focused on the time and attendance and access control
markets where biometric solutions are actively being sought and the ability to
generate sales revenues is immediate. During 1999, it will expand its marketing
efforts to include direct contact with financial institutions, smart and credit
card companies, electronic commerce and computer equipment companies where
interest in biometrics is growing, but the creation of significant sales revenue
is not expected in the near future. BII would like to leverage relationships in
both Silicon Valley and financial markets to create a "business development"
approach which is respected and has impact. From BII's perspective, solutions in
the electronic commerce and financial transaction areas will occur in an
alliance situation with important players.
 
     In June of 1998, BII introduced its Veriprint 1000 product line. This
product has a package size smaller than a computer mouse and is targeted at the
NT network security, electronic commerce and PC security marketplaces. BII has
received interest in this product line from VARs and OEMs such as Westinghouse,
Radionics and Kronos. BII hopes that this product will open up new marketplaces
for BII in the general computer/data network marketplace where corporations
and/or institutions want to increase the protection of confidential information.
Actual market applications which BII is presently pursuing with potential
customers include security for NT networks and patient record security at
hospitals.
 
     BII intends to launch an aggressive marketing campaign focusing on landing
high profile accounts to generate more publicity. BII believes that it needs to
match its technological abilities with aggressive high level publicity and
marketing. Additionally, BII attends trade shows to showcase its products, such
as the Card Tech Security Trade Show.
 
     BII has a website for general customer information at www.biometricID.com.
 
     BII has retained a small marketing company located in the United Kingdom as
a representative for BII in the European market area. In BII's view, the
European market provides another marketing possibility for BII. BII would like
to secure several sales representatives to assist BII in introducing its
products into the European and Asian marketplaces.
 
  Research and Development Plan
 
     BII's management believes that the development of a self-contained
fingerprint verification unit requires expertise in three primary areas: signal
processing and detector development, software engineering and parallel
processing. The Veriprint research and development team at Arete is qualified in
all three of these technical fields. Arete is an applied research corporation
with over 20 years of experience and more than 140 staff members skilled in
electro-optics, image processing and analysis, algorithm design and software
development. Arete has obtained the recognition of the technical community
through an integration of scientific knowledge and advanced sensor systems
expertise. Arete's original focus was oceanographic research and remote sensing,
but expanded to encompass development and implementation of real-time
processors, design and analysis of active and passive optical sensors, and
formulation of sophisticated likelihood-based detection algorithms.
 
                                       10
<PAGE>   14
 
     The Tucson, Arizona office of Arete is Arete's primary location for active
and passive electro-optic remote sensing. This office has been involved in the
development, optimization and evaluation of advanced high resolution sensors for
shallow water imaging applications. BII has stated that particular areas of
expertise include receiver development, real-time processing, field test
evaluation, performance assessment, physical modeling and data analysis.
 
     The staff scientists at Arete developed the fingerprint verification
algorithm. The algorithm was designed to exploit all of the significant
information contained within the fingerprint. Unlike the majority of algorithms
on the market which use only a small fraction of the image, referred to as the
minutia, the Veriprint algorithm exploits the entire ridge pattern. In BII's
view, the "full print" approach should be more accurate and more stable over
time.
 
     Because of the overall sophistication of the algorithms and parallel
processing technologies used within the Veriprint unit, the software development
effort requires experience in real-time signal processing, digital signal
processor-based parallel processing methodologies, microprocessor-based coding
and stringent adherence to software engineering principles. Arete's experience
in implementation and assessment of real-time advanced sensor systems provides
the necessary background to perform this software development.
 
     BII intends to aggressively develop a suite of fingerprint software
products leveraging its ridge recognition algorithms as the primary element.
This software suite will be marketed to large information technology companies
working to create a software standard. Future research and development work will
focus on:
 
     - V-1100 -- the design and production of a new V-1100 chip which will have
       template storage on the chip as well and the ability for the unit to
       perform verification.
 
     - V-1500 -- product development -- the unit will incorporate a second board
       which will provide additional functions, such as ethernet connection,
       multiple communication paths, additional memory and built-in Weigand
       capability ("Weigand" is a primitive computer language used for
       inter-computer communications). Weigand capability is important for the
       access control market.
 
  Competition
 
   
     There appear to be dozens of biometric companies in the business or
publicizing that they are entering the biometric industry. BII believes that it
is only reasonable to expect that as market opportunities start to materialize,
competition will increase. In analyzing the current competitive landscape, BII
believes that the majority of the new companies entering the market are focused
in the areas of PC and NT network security and the financial transaction areas
(smart card and electronic commerce). BII believes that the majority of its
competitors are leveraging "minutia"-based algorithms, either of their own
creation or licensed from another company. BII believes that its two-dimensional
ridge approach with distortion handling is superior for this marketplace.
    
 
     BII is developing a product line which will allow it to target several key
market segments. The Veriprint 2100 and the upcoming Veriprint 1500 will be
marketed to the access control and time and attendance markets. In BII's
experience, there is aggressive activity by participants in these markets and a
growing, forming marketplace.
 
     There are also markets where an end consumer identity is not important as
BII integrates with OEM and VAR applications. BII believes that function, ease
of integration and price drive these markets. BII has developed its Veriprint
1100 to compete in the PC network, information technology and financial
transaction areas. BII expects that this is where it will face the bulk of its
competition.
 
     The PC network security market is starting to develop and appears to be
ahead of the electronic commerce and point of sale/electronic commerce
transaction marketplace, which will take time to put together a solution which
works for all involved. In the early stage of electronic commerce, the
stand-alone mouse-like product will be a key component, adding functionality to
existing installed PCs. In the long run, electronic commerce and security
functionality could be integrated into a key board or a lap top and be as common
as a mouse is today. These markets appear to be wide open.
 
                                       11
<PAGE>   15
 
     To BII's knowledge, to date there are two companies, Identix, Inc. and
Recognition Systems, Inc., who have been the early players in the biometric
market area. It is against these companies that BII believes it will be
primarily competing in the time and attendance and access control marketplaces.
 
     Identix, Inc. is a 15 year old company based in Sunnyvale, California, with
a strong presence in the law enforcement market, and a growing presence in
access/control. It is a public company with US$79 million in annual revenue and
uses fingerprint identification. Most of the business comes from the law
enforcement segment. Identix appears to have strong marketing ties and an
established track record, as reflected by its recent joint venture with Oracle,
the largest database company in the world.
 
     Recognition Systems, Inc. is a private company based in Campbell,
California, that uses hand geometry and concentrates on the commercial market.
While this technology is less sophisticated than fingerprint technology (with
larger databases they will have duplication because hand geometry is less
unique), the company offers a solution that is considered flexible and
programmable. The ten year old company produced the biometric system for access
to the Olympic Village in Atlanta, Georgia.
 
     Another fingerprint identification competitor is Mytec Technologies
("Mytec") based in Ontario, Canada. Mytec specializes in the access control
market. It is publicly held with annual sales to June, 1998 of more than $10
million, mostly in alarm monitoring and response. Its subsidiary, Counterforce,
monitors security alarms and has approximately 33,000 accounts. The company
focuses on niche markets such as database and medical record access, rather than
mainstream access markets, so that it can leverage its encryption technology.
Mytec has announced strategic alliances with Compaq Computer and Casinoworld.
 
     A number of other competitors of BII largely focus on PC network security
and financial/electronic commerce marketplaces. One of these, The National
Registry, is a public company which has been in the news frequently and has
strategic alliances with Key Tronic Corp., which designs and manufactures
keyboards, and Unisys Corp. Based in St. Petersburg, Florida, The National
Registry is focusing on fingerprint technology for mass market computer station
applications.
 
     Digital Personna is a privately-held relatively new company located in
Redwood City, California which will be introducing a unit focused on PC/NT and
electronic commerce marketplace. Digital Personna also appears to be focused on
the consumer marketplace.
 
     American Biometric Company is a privately held company and has recently
introduced the "BioMouse". The BioMouse is a peripheral device which attaches to
the serial port and is focused on PC and NT security. It has been on the market
for only a short time. The BioMouse is optically based, utilizing a
minutia-based algorithm.
 
     Sony has introduced a fingerprint identification unit focused on PC and NT
security. The Sony unit is optically based utilizing minutia-based algorithms.
BII understands from Veridicom that Sony may integrate with its chip.
 
     Additionally, there are several other companies in the PC/NT security
market such as Identicator, Digital Biometrics, Inc., FingerMatrix, Inc., and
Printrak International, Inc. These companies are mostly start-ups or established
forensic companies now entering the commercial market.
 
  Patents, Trademarks, and Copyrights
 
     Arete has provided an exclusive license to BII for its five pending patents
in fingerprint sensing and algorithms. The patent applications have been filed
during the past three years with the U.S. patent office and three have proceeded
to filings under the Patent Cooperation Treaty. Of these, one has proceeded to
national stage filings in Brazil, Japan and Canada, and with the European Patent
Office. Effective, January 8, 1999, a patent on key technology elements of ridge
recognition is in the process of being issued in the United States.
 
                                       12
<PAGE>   16
 
RISK FACTORS
 
     The Company's business now consists primarily of its investment in BII (See
"Business of the Company"). Therefore, an investment in the shares of the
Company is subject to, primarily, the risks associated with BII's business. The
risks inherent to BII's business may be summarized as follows:
 
  Uncertainty of Market Acceptance and Development
 
     Substantially all of BII's product revenues to date have been, and for the
foreseeable future are anticipated to be, derived from biometric identity
verification ("Bio-ID") products and biometric imaging products. These products
represent new technologies, which have not yet gained widespread commercial
acceptance. In particular, Bio-ID products represent a new approach to identity
verification, which has only been used in limited applications to date. The
expansion of the market for BII's products depends on a number of factors,
including the cost and reliability of BII's products and products of
competitors, customers' perception of the benefits of these products, public
perceptions of the intrusiveness of these products and the manner in which
agencies are using the fingerprint information collected, public confidence as
to protection of private information, customers' satisfaction with BII's
products and publicity regarding these products. Public objections have been
raised as to the use of biometric products for some applications on civil
liberties grounds.
 
     BII's future success is dependent upon the development and expansion of
markets for Bio-ID products and biometric imaging products both domestically and
internationally. In addition, even if markets develop for Bio-ID products and
additional markets develop for biometric imaging products, there can be no
assurance that BII's products will gain wide market acceptance in these markets.
A number of factors may limit the market acceptance of BII's products, including
the performance and price of BII's products compared to competitive products or
technologies, the practicalities of developing the infrastructure necessary to
support certain Bio-ID applications such as ATMs and point-of-sale applications,
the nature of technological innovations and new product development activities
by BII and its competitors, and the extent of marketing efforts by BII's
collaborators or partners. If the markets for BII's products fail to develop or
develop more slowly than anticipated or if BII's Bio-ID products fail to gain
wide market acceptance, or biometric imaging products lose market share, BII's
business, financial condition and results of operations would be materially and
adversely affected.
 
  Risks of Competition and Rapid Technological Change
 
     The markets for Bio-ID products and biometric imaging systems are extremely
competitive and are characterized by rapid technological change, as a result of
technical developments exploited by competitors, the changing technical needs of
customers, and frequent introductions of new features. BII expects competition
to increase as other companies introduce additional and more competitive
products. In order to compete effectively in this environment, BII must
continually be able to develop and market new and enhanced products and market
those products at competitive prices.
 
     There can be no assurance that BII will be able to make the technological
advances necessary to compete successfully in its products business. Some of
BII's present and potential competitors have financial, marketing and research
resources substantially greater than those of BII. Existing and new competitors
may enter or expand their efforts in BII's product markets, or develop new
products to compete against BII products. No assurance can be given that BII's
competitors will not develop new technologies or enhancements to existing
products or introduce new products that will offer superior price or performance
features or that new products or technologies will not render obsolete the
products of BII.
 
  Dependency on New Products and Risks of Rapid Innovation
 
     BII's future success will depend upon its ability to address the needs of
the market by enhancing its current products and by developing and introducing
new products on a timely basis that keep pace with technological developments
and emerging industry standards, respond to evolving customer requirements and
achieve market acceptance. The development of new, technologically-advanced
products and product enhancements is a complex and uncertain process requiring
high levels of innovation, as well as the accurate
 
                                       13
<PAGE>   17
 
anticipation of technological and market trends. Any failure by BII to
anticipate or adequately respond to technological developments or end user
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness or revenue.
 
     There can be no assurance that BII will be successful in developing and
marketing product enhancements or new products on a timely basis if at all, that
BII will not experience difficulties that could delay or prevent the successful
development, introduction and sale of these products, or that any of its new
products and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. If BII is unable, for technological
or any other reason, to develop, introduce and sell its products in a timely
manner, BII's business, financial condition and results of operations would be
materially and adversely affected.
 
  Inability to Establish Strategic Relationships for Product Distribution
 
     BII's strategy for the distribution of certain of its products requires
entering into various strategic relationships with OEMs, systems integrators and
resellers. Some of these relationships are formalized in agreements; however,
such agreements may often be terminated with little or no notice, and subject to
periodic amendment. Although BII believes that the OEMs, systems integrators and
resellers with which it works have an economic motivation to promote or use
BII's products, the amount and timing of resources to be devoted to these
activities are not within the control of BII. There can be no assurance that
such parties will actively promote BII's products or pursue installations which
use BII equipment, that any distribution or other arrangements with BII will not
be terminated or renegotiated or that BII will derive any revenues from such
arrangements. BII intends to continue to seek strategic relationships to
distribute and sell certain of its products. There can be no assurance that BII
will be able to negotiate acceptable strategic relationships in the future or
that current or future strategic relationships will be successful.
 
  Risk of Product Defects and Failure to Meet Performance Criteria
 
     Complex products such as those offered by BII may contain undetected or
unresolved defects or may fail initially to meet customers' performance criteria
when first introduced or as new versions are released. There can be no assurance
that, despite testing by BII, defects or performance flaws will not be found in
new products or new versions of products following commercial release or that
performance failures will not result, causing loss of market share, delay in or
loss of market acceptance, additional warranty expense or product recall. In
addition, the failure of products to meet performance criteria could result in
delays in recognition of revenue and higher operating expenses during the period
required to correct such defects. There is a risk that for unforeseen reasons
BII may be required to repair or replace a substantial number of products in use
or to reimburse persons for products that fail to work or meet strict
performance criteria. Any such occurrence could have a material adverse effect
on BII's business, financial condition and results of operations.
 
  Uncertainty of Protection of Proprietary Technology
 
   
     BII's ability to compete effectively will depend in part on its ability to
maintain the proprietary nature of its technology, products and manufacturing
processes. BII principally relies upon patent, copyright, trade secret and
contract law to establish and protect its proprietary rights. The success of
BII's products business will depend in part on its proprietary technology and
BII's protection of such technology. Arete holds United States and foreign
patents covering certain of its products and technologies and has other patent
applications pending. BII licenses its technology from Arete.
    
 
   
     No assurance can be given that the claims allowed on any patents held by
BII will be sufficiently broad to protect BII's technology. In addition, no
assurance can be given that any patents issued to BII will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to BII. The loss of patent protection on BII's technology
or the circumvention of its patent protection by competitors could have a
material adverse effect on BII's ability to compete successfully in its products
business. There can be no assurance that any existing or future patent
applications by Arete or BII will result in issued patents with the scope of the
claims sought, or at all, that any current or future issued or
    
 
                                       14
<PAGE>   18
 
licensed patents, trade secrets or know-how will afford sufficient protection
against competitors with similar technologies or processes, or that any patents
issued will not be infringed upon or designed around by others.
 
     In addition, there can be no assurance that others will not independently
develop proprietary technologies and processes, which are the same as,
substantially equivalent or superior to those of BII. Further, there can be no
assurance that BII has not or will not infringe on prior or future patents owned
by others, that BII will not need to acquire licenses under patents belonging to
others for technology potentially useful or necessary to BII, or that such
licenses will be available to BII, if at all, on terms acceptable to BII.
Litigation, which could result in substantial cost to BII and diversion of
management attention, may also be necessary to enforce any patents issued to BII
or to determine the scope and validity, of other parties' proprietary rights.
 
     BII also relies on trade secrets and proprietary know-how which it seeks to
protect by confidentiality agreements with its employees and consultants and
with third parties. There can be no assurance that these agreements will not be
breached, that BII will have adequate remedies for any breach, or that its trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by others. See "Patents, Trademarks and Copyrights".
 
  Dependence on Key Personnel
 
     BII's success will depend upon its ability to retain its current senior
management team and key technical, marketing and sales personnel and its ability
to identify, attract and retain additional highly qualified personnel. BII's
employees may voluntarily terminate their employment with BII at any time, and
competition for qualified employees, especially engineers, is intense. The
process of locating additional personnel with the combination of skills and
attributes required to carry out BII's strategy is often lengthy. The loss of
the services of key personnel, or the inability to attract additional qualified
personnel, could have a material adverse effect on BII's business, financial
condition and results of operations. As BII is also dependent on relationships
it has developed with the staff of Arete Associates, including an agreement
between BII and Arete pursuant to which Arete is to provide BII with the
services of four full-time equivalent engineers, any breakdown of these
relationships could also have a similar material adverse effect.
 
  Applicability of Company Management's Expertise
 
     The expertise and experience of the Company's management is principally in
the resource exploration and development industry. As such, at least in the
immediate future, the Company's management must rely to a large extent upon the
expertise and experience of BII's management.
 
  Risk of Year 2000 Noncompliant Systems
 
     The year 2000 issue is a general term used to refer to certain business
implications of the arrival of the new millennium. In simple terms, these
implications arise largely because it has been normal practice for computer
hardware and software to use only two digits rather than four to record the year
in date fields. On January 1, 2000, when the year is designated as "00", many
computer systems could either fail completely or create erroneous data as a
result of misinterpretation of the year. In some cases, date sensitive systems
may begin to fail prior to January 1, 2000. The results of failures may range
from relatively minor processing inaccuracies to catastrophic system
malfunctions. Failures may affect not only hardware and software used to process
everyday business information but also the imbedded computers that control plant
machinery, robotics, office equipment, elevators and building climate and
security systems.
 
     The Company does not anticipate that it will experience significant year
2000 issues, because it utilizes commercial programs and systems that are
standard, Year 2000 compliant, business products. The Company is in the process
of contacting its principal suppliers to make sure that they are also Year 2000
compliant and anticipates that it will have completed its assessment of
suppliers by the third quarter of 1999.
 
     The Company has asked BII to evaluate the products and services that BII
offers, as well as its information technology infrastructure, to determine
whether BII or its customers may have exposure to
 
                                       15
<PAGE>   19
 
Year 2000 problems, and to make inquiries of BII's key suppliers, to determine
their readiness with respect to Year 2000 problems.
 
   
     The Year 2000 problem is pervasive and complex and there can be no
assurance that the Company and BII have been or will be able to identify all of
the Year 2000 issues that may affect their products, services or internal
computer systems, or that any remedial efforts undertaken by the Company and BII
will adequately address any potential Year 2000 problems.
    
 
  Risk of Monetary Exchange Rate Fluctuation
 
     The profitability of BII and the Company may be adversely affected by
fluctuations in the rate of exchange of Canadian dollars into U.S. dollars.
Neither BII nor the Company typically has the capital available to take steps to
hedge against currency fluctuations.
 
  Credit Risks Related to Investment in Convertible Debentures of BII
 
     The Company's business now consists only of its investment in convertible
debentures issued by BII, a U.S. development stage company. These convertible
debentures are unsecured and do not provide for regular payments of principal or
interest to the Company. Until the Company exercises its rights of conversion
under the convertible debentures, the Company will not have the voting and other
rights provided to the shareholders of BII through their shareholdings. The
Company does not have any control over the shareholders or the Board of
Directors of BII.
 
  Risk of Failure to Meet Future Capital Needs
 
     As growing businesses, both the Company and BII typically need more capital
than they have available to them or can expect to generate through the sale of
their products. In the past, both the Company and BII have had to raise, by way
of debt and equity financing, considerable funds to meet their capital needs.
BII has been operating at a substantial deficit and has substantial monthly
expenses which are expected to grow as BII expands. There is no guarantee that
the Company or BII will be able to continue to raise funds needed for their
business. Failure to raise the necessary funds in a timely fashion will limit
both the Company's and BII's growth. The initial funds advanced by the Company
to BII will not be sufficient to maintain BII's solvency for any significant
period of time. Further, if the Company is not able to provide additional
capital for BII, the Company's interest in BII may be diluted if BII seeks
additional equity financing from other sources.
 
  Dividends
 
     The Company has not paid dividends in the past and does not anticipate
paying dividends in the near future. See "Dividend Record and Policy".
 
   
  Conflicts of Interest
    
 
     Certain officers and directors of the Company may hereafter become
associated with other technology companies that acquire interests in various
technologies. Such associations could give rise to conflicts of interest from
time to time. The directors of the Company are required by law, however, to act
honestly and in good faith with a view to the best interests of the Company and
its shareholders, and to disclose any personal interest which they may have in
any material transaction which is proposed to be entered into with the Company
and to abstain from voting as a director for the approval of any such
transaction. Certain transactions may also require shareholder approval under
applicable law or the rules of the Vancouver Stock Exchange.
 
ITEM 2  PROPERTIES
 
     The Company occupies approximately 2,300 square feet of leased space at
Suite 1940, 400 Burrard Street, Vancouver, British Columbia under a lease
expiring October 31, 2000. A total of four employees of the Company operate out
of its Vancouver, British Columbia office.
 
     BII occupies two administration offices in California, an engineering
office in Tucson, Arizona and sales offices in Dayton, Ohio and London, England.
 
                                       16
<PAGE>   20
 
     BII's California offices occupy a total of approximately 4,200 square feet
and are located at 5000 Van Nuys Blvd., Sherman Oaks, California and 324 E-11th
Street, Tracy, California. A total of 25 employees and consultants operate out
of the California offices. A total of 10 employees and consultants operate out
of the Arizona, Ohio, and London offices.
 
ITEM 3  LEGAL PROCEEDINGS
 
     Other than as disclosed below, no material legal proceedings are pending to
which the Company is a party or of which any of its properties is subject.
 
     Effective as of November 10, 1998, in compliance with the "continuation"
procedure provided for under the Company Act (British Columbia), the Company
continued into the State of Wyoming (the "Continuation"), where it is now
governed by the Wyoming Business Corporations Act. The Company's management has
subsequently determined that the Company should continue back to British
Columbia. In order to solicit shareholder approval for such continuation, the
Company filed on March 5, 1999, as required by the Securities Exchange Act of
1934 (the "Exchange Act"), a preliminary proxy statement with the U.S.
Securities and Exchange Commission (the "SEC") which was reviewed by the staff
(the "Staff") of the SEC in accordance with rules promulgated under the Exchange
Act. Based on such review, the Staff informally advised the Company that the
Staff believes that the original Continuation was an event that would have
required, under the Securities Act of 1933 (the "Securities Act"), the filing of
a registration statement with the SEC. The Staff further advised that it would
consider arguments that registration was not so required. The Company requested
its special counsel for U.S. securities matters ("U.S. Counsel") to conduct
further analysis in response to the Staff's advice. Following such analysis U.S.
Counsel concluded that there are substantial arguments that under applicable law
the effectuation of the Continuation should not have required the filing of a
registration statement. Upon request of the Company, U.S. Counsel prepared a
written submission, dated March 19, 1999, to present these arguments to the
Staff.
 
     In response to this submission, on March 25, 1999, the Staff orally advised
the Company's U.S. Counsel that the Staff was maintaining its original position
that the Continuation required registration under the Securities Act. The
Company has decided to resolve this matter by filing a registration statement
under the Securities Act for an "offer in rescission" (the "Registration
Statement") in connection with the shares deemed to have been offered in
connection with the Continuation. In that event, during the period between the
Continuation and the effective date of the Registration Statement (effectiveness
occurring only after the Company has successfully responded to all comments of
the Staff regarding the Registration Statement, including possibly in an
amendment thereto) persons who were shareholders of the Company at the time of
the Continuation may have common law remedies for a possible violation of the
registration requirement under the Securities Act. The exposure of the Company
in that event is difficult to quantify because such shareholders were, prior to
the Continuation, provided their statutory right of dissent under the Company
Act (British Columbia) to be paid the fair market value of their shares if they
dissented from the Continuation. No holder of Company shares exercised such
dissent right. Pursuant to the offer in rescission to be issued by the Company,
holders of Company shares at the time of the Continuation would be offered the
right to have their shares repurchased by the Company at their fair market value
at the time of the Continuation.
 
ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     On October 9, 1998, at an Extraordinary General Meeting, the shareholders
of the Company voted to continue the Company in the state of Wyoming, to change
the name of the Company to Biometric Security Corp., and to increase the
Company's authorized capital to an unlimited number of common shares. The
shareholder vote for the continuance was 4,883,862 votes in favor, 24,226 votes
against, and 440 abstentions. The shareholder vote for the name change was
4,895,524 votes in favor, 12,664 votes against, and 400 abstentions. The
shareholder vote for the increase in common shares was 4,901,744 votes in favor,
6,824 votes against, and zero abstentions.
 
     Effective November 10, 1998, the change of name and continuance of the
Company in the state of Wyoming had been completed. Effective November 12, 1998,
the increase of the Company's authorized capital to an unlimited number of
common shares had taken place.
 
                                       17
<PAGE>   21
 
                                    PART II
 
ITEM 5  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The common shares (the "Common Shares") of the Company are quoted for
trading on the Vancouver Stock Exchange (the "VSE") under the symbol "BMS". As
of March 15, 1999, there were 32,501,078 Common Shares issued and outstanding,
held by 2,203 shareholders of record. The following table sets out the range of
high and low closing prices as reported on the VSE for the fiscal periods
indicated:
 
<TABLE>
<CAPTION>
                                                                HIGH        LOW
                                                              (CDN. $)    (CDN. $)
                                                              --------    --------
<S>                                                           <C>         <C>
FISCAL YEAR ENDED DEC. 31, 1997
  First Quarter.............................................    1.15        1.05
  Second Quarter............................................    0.86        0.50
  Third Quarter.............................................    0.46        0.30
  Fourth Quarter............................................    0.33        0.27
FISCAL YEAR ENDED DEC. 31, 1998
  First Quarter.............................................    0.27        0.16
  Second Quarter............................................    0.52        0.18
  Third Quarter.............................................    0.36        0.16
  Fourth Quarter............................................    0.25        0.18
</TABLE>
 
     On March 15, 1999, the closing price of the Common Shares on the VSE was
$0.25.
 
     The Common Shares are also traded from time to time on the over-the-counter
market in the United States.
 
  Dividend Record and Policy
 
     The Company has not paid any dividends since incorporation and it has no
plans to pay dividends in the immediate future. The Company expects to retain
any earnings to finance further growth and, when appropriate, retire debt. The
directors of the Company will determine if and when dividends should be declared
and paid in the future based on the Company's financial position at the relevant
time. All of the common shares of the Company are entitled to an equal share in
any dividends declared and paid.
 
UNREGISTERED SALES OF SECURITIES DURING THE LAST THREE YEARS
 
  For the Period Ended December 31, 1998
 
     On December 29, 1998, the Company commenced a private placement of
11,666,666 units (the "Units") to qualified investors at a price of $0.15 per
Unit. Each Unit offered consisted of one common share and one non-transferable
share purchase warrant. Each warrant is exercisable for a period of two years
from closing and will entitle the holder to purchase one common share at a price
of $0.15 per share during the first year after closing and at a price of $0.17
per share during the second year after closing. For that offering, Goepel
McDermid Inc. (the "Agent") acted as agent and placed 6,666,666 Units. The
Company placed 5,000,000 Units directly. The Agent received a commission of 10%
of the gross proceeds raised from its portion of the offering, which was paid in
cash ($100,000). As additional compensation, the Agent was granted a warrant to
acquire up to 1,000,000 shares of the Company, which is that number of shares
equal to 15% of the number of Units placed by it for a period of two years at a
price of $0.15 per share during the first year after closing and at a price of
$0.17 per share during the second year after closing. The price of the Units was
determined by the Company and the Agent with reference to the recent trading
prices of the Company's common shares on the VSE.
 
     The offering commenced on December 29, 1998 and closed on January 29, 1999.
The Company received $1,750,000 in total proceeds. This transaction was effected
in reliance upon the exemption from United States securities law registration
requirements provided by Regulation S under the Securities Act of 1933 (the
 
                                       18
<PAGE>   22
 
"Securities Act") because none of the securities were offered or sold in the
United States or to "U.S. persons" other than "distributors" (as such quoted
terms are defined in Regulation S).
 
     On September 10, 1998, the Company completed a private placement of 660,000
units at $0.15 per unit. Each unit consisted of one common share and one
non-transferable share purchase warrant. Each warrant is exercisable at a price
of $0.15 per share if purchased on or before September 10, 1999, or at a price
of $0.17 per share if purchased from and including September 11, 1999 to
September 10, 2000. The Company received $99,000 in cash proceeds.
 
     On May 15, 1998, the Company completed a private placement of 3,375,000
special warrants at a price of $0.15 per special warrant. Each special warrant
is exchangeable, at no additional cost, into one common share and one
non-transferable share purchase warrant that allows the holder to purchase one
common share at a price of $0.15 per share if exercised within the first year
and $0.17 per share if exercised within the second year. The Company received
$506,250 in cash proceeds.
 
  For the Period Ended December 31, 1997
 
     In January 1997, the Company issued the 5,000,000 shares and 5,000,000
one-half share purchase warrants upon exercise of the 5,000,000 Special Warrants
offered in October 1996 (and described below). 250,000 compensation options were
also issued to the underwriter upon the exercise of 250,000 special compensation
options. In addition, the net proceeds of $5,106,645 from the sale of Special
Warrants, together with $39,286 in interest earned thereon, were released to the
Company.
 
  For the Period Ended December 31, 1996
 
     On October 22, 1996, the Company completed the private placement of
5,000,000 Special Warrants at an issue price of $1.10 per Special Warrant. Each
Special Warrant entitled the holder to acquire, without further consideration,
one unit comprising one common share and one-half of a share purchase warrant,
with each whole warrant entitling the holder to purchase one additional share at
$1.30 per share for a two year period. The Company also granted the underwriters
250,000 special compensation options as partial compensation for the placement
of the Special Warrants. Each special compensation option entitled the
underwriter to acquire, without further consideration, one compensation option.
Each compensation option is exercisable for one unit at a price of $1.10 per
unit to January 31, 1999. Each unit consists of one common share and one-half of
a share purchase warrant, with each whole warrant entitling the underwriter to
purchase one additional share for $1.30 per share to January 31, 1999.
 
     On August 21, 1996 the Company entered into subscription agreements for the
private placement of an aggregate of 1,400,000 units of the Company at a price
of $1.10 per unit. Each unit consisted of one common share of the Company and
one non-transferable share purchase warrant entitling the holder to purchase an
additional common share of the Company for a period of two years at a price of
$1.25 per share. The Company received $1,540,000 in cash proceeds.
 
     On January 26, 1996, the Company entered into a subscription agreement with
Federico Brown pursuant to which Mr. Brown purchased, by way of private
placement, a total of 37,000 units of the Company at a price of $1.28 per unit.
Each unit consisted of one common share of the Company and one non-transferable
share purchase warrant to purchase an additional share of the Company for a
period of two years at a price of $1.28 per share during the first year of the
term and $1.47 per share during the second term. At the time of the private
placement, Mr. Brown was an employee of the Company. The Company received
$47,360 in cash proceeds.
 
     On February 20, 1996, the VSE approved a private placement, announced on
December 5, 1995, of 100,000 units of the Company at a price of $0.80 per unit.
Daniel J. Kunz, at the time the President and a director of the Company, was the
sole participant in the private placement. Each unit in the private placement
consisted of one common share and one non-transferable share purchase warrant
entitling Mr. Kunz to purchase a further common share of the Company for two
years at a price of $0.80 per share during the first year and $0.92 per share
during the second year.
 
                                       19
<PAGE>   23
 
     Except for the first transaction described above (which, as noted, was
effected in reliance on the exemption provided under Regulation S of the
Securities Act), the transactions above were effected in reliance upon the
exemption from registration requirements provided by Section 4(2) of the
Securities Act on the basis that such transactions did not involve any public
offering.
 
ITEM 6  SELECTED FINANCIAL DATA
 
     The selected consolidated financial data set forth below with respect to
the Company's consolidated statements of operations for each of the three fiscal
years in the period ended December 31, 1998 and with respect to the consolidated
balance sheets at December 31, 1998 and 1997, are derived from the Company's
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. Consolidated statement of operations data for the years
ended December 31, 1995 and 1994, and balance sheet data at December 31, 1996,
1995 and 1994 have been derived from audited consolidated financial statements
of the Company not included in this Annual Report on Form 10-K. (These financial
statements, which included a note reconciling differences between U.S. and
Canadian Generally Accepted Accounting Principles ("GAAP"), were filed with the
Company's Annual Reports on Form 20-F.)
 
     The following selected financial consolidated financial data should be read
in conjunction with the consolidated financial statements for the Company and
the notes thereto appearing in Item 8 of this Annual Report on Form 10-K.
Historical operating results are not necessarily indicative of the results that
may be expected in any future period.
 
     As a result of the Company's Continuation into the State of Wyoming, the
Company has adopted U.S. GAAP and restated prior years figures to be in
accordance with U.S. GAAP. As the functional currency of the Company is Canadian
dollars, all amounts are in Canadian dollars.
 
<TABLE>
<CAPTION>
                                                     FOR THE FISCAL YEARS ENDED DEC. 31,
                                      ------------------------------------------------------------------
                                         1998           1997          1996          1995         1994
                                      -----------    ----------    ----------    ----------    ---------
                                       (STATED IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA)
                                      ------------------------------------------------------------------
<S>                                   <C>            <C>           <C>           <C>           <C>
Revenue.............................   $     159      $    175      $    102      $    211      $    36
Net income (loss)...................   $  (5,684)     $ (2,200)     $ (1,259)     $ (1,142)     $  (406)
Net income (loss) per share.........   $   (0.30)     $  (0.13)     $  (0.14)     $  (0.20)     $ (0.10)
Cash dividends declared per share...   $       0      $      0      $      0      $      0      $     0
Working capital.....................   $      10      $  3,072      $  6,369      $  1,936      $ 1,846
Total assets........................   $   4,007      $  8,274      $ 10,451      $  2,721      $ 2,010
Total liabilities...................   $     299      $    283      $    571      $     91      $   143
Share capital.......................   $  13,789      $ 12,388      $ 12,077      $  3,567      $ 1,662
Retained earnings (deficit).........   $ (10,080)     $ (4,397)     $ (2,197)     $   (937)     $   204
</TABLE>
 
ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
FORWARD-LOOKING STATEMENTS
 
     As noted above, the statements in this Annual Report on Form 10-K that
relate to future plans, events or performance are forward-looking statements.
Actual results could differ materially due to a variety of factors, including
the factors described under "Risk Factors" and the other risks described in this
Annual Report on Form 10-K. The Company undertakes no obligation to publicly
update these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
 
  Current Capital Resources and Liquidity
 
     Since inception, the Company's capital resources have been limited. Since
cash generated from operations has been nominal, the Company has had to rely
upon the sale of equity and debt securities for cash required for investments
and operations, among other things. The Company has acquired the right to invest
up to US $5,000,000 into BII by way of the acquisition of convertible debentures
(see Item 1 -- Business of the Company). As at December 31, 1998, the Company
had invested US $2,325,000 into BII, and invested an
                                       20
<PAGE>   24
 
additional US $550,000 on January 29, 1999, leaving another US $2,125,000 to
possibly be invested in the future. As at December 31, 1998, the Company had
working capital of approximately $10,478. In January 1999, the Company raised an
additional net proceeds of $1,650,000 by way of the sale of shares of the
Company, some of which was used to make the additional US$550,000 investment in
BII. The Company's current working capital is not sufficient to make the rest of
the investment in BII.
 
     Since the Company is unlikely to have cash flow in the near future, the
Company will have to continue to rely upon equity and debt financing during such
period. There can be no assurance that financing, whether debt or equity, will
always be available to the Company in the amount required at any particular time
or for any particular period or, if available, that it can be obtained on terms
satisfactory to the Company. Other than in respect of the BII acquisition, the
Company does not have any commitments for material capital expenditures over
either the near or long term and none are presently contemplated over normal
operating requirements.
 
FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
 
  Results of Operations
 
     A $0.30 loss per share in the fiscal year ended December 31, 1998 resulted
from cash and short-term investment earnings of $159,118 less expenses of
$1,250,578 and mineral property write-offs of $4,592,237. This is compared to a
$0.13 loss per share in the fiscal year ended December 31, 1997 from cash and
short-term investment earnings of $175,185, expenses of $759,182, and mineral
property write-offs of $1,615,898.
 
     Administrative costs in 1998 increased 67% over 1997, primarily as a result
of the Company incurring increased professional fees and finders fees.
 
  Liquidity and Capital Resources
 
     Cash flow from operations has not to date satisfied all of the Company's
operational requirements and cash commitments. The Company has not yet completed
its capital budget and therefore cannot project accurately capital expenditures;
however, with working capital of approximately $10,478 as at December 31, 1998,
the Company does not presently have sufficient financial resources to acquire
the remaining debentures in BII anticipated to be acquired pursuant to the
agreement with BII. In the past, the Company relied on sales of debt and equity
securities to meet its cash requirements to the extent that they exceeded cash
flow from operations. If the Company cannot raise the necessary financing
directly by way of debt, equity or other means, it may be forced to curtail its
purchase of debentures of BII and its operating activities. At this time, the
Company is seeking but does not have specific arrangements to obtain the
necessary financing. There is no assurance that the Company will be successful
in obtaining any such financing.
 
     During 1998, the Company completed a 3,375,000 unit private placement that
raised proceeds of $506,250 and a 660,000 unit private placement that raised
proceeds of $99,000. In addition, the Company raised $23,000 from the exercise
of 100,000 stock options. The Company also issued 250,450 Common Shares at a
deemed value of $75,135 for finders fees in connection with the BII debentures.
 
  Balance Sheets
 
     Total cash and short-term investments at December 31, 1998 were $245,182 as
compared to $3,330,110 at December 31, 1997 and working capital decreased to
$10,478 as at December 31, 1998 compared to $3,072,259 as at December 31, 1997.
 
     As at December 31, 1998, a total of $3,637,219 (US$2,325,000) including
accrued interest of $79,989 had been invested in debentures of BII.
 
                                       21
<PAGE>   25
 
  Subsequent Events
 
     Subsequent to December 31, 1998, the Company:
 
          a) Completed Private Placements commencing on December 29, 1998, which
     consisted of:
 
             i) a best efforts brokered private placement of 6,666,666 units at
        $0.15 per unit for total proceeds of $1,000,000.
 
             ii) a non-brokered private placement of 5,000,000 units at $0.15
        per unit for total proceeds of $750,000.
 
             Each unit consisted of one common share and one two-year,
        non-transferable share purchase warrant. Each warrant is exercisable at
        a price of $0.15 per share in the first year and $0.17 per share in the
        second year. Remuneration paid to the broker for acting as agent
        consisted of a 10% commission ($100,000) payable in cash and a two year
        broker's warrant exercisable into 1,000,000 shares of the Company. The
        broker's warrants are exercisable at a price of $0.15 per share in the
        first year and $0.17 per share in the second year.
 
          b) Announced a $1,750,000 Private Placement, which is awaiting
     Canadian regulatory approval as of March 15, 1999. The private placement
     will consist of 11,666,666 units, brokered on a best efforts basis, at a
     price of $0.15 per unit for total proceeds of $1,750,000. Each unit will
     consist of one common share and one two-year non-transferable share
     purchase warrant. Each warrant will be exercisable at a price of $0.15 per
     share in the first year and $0.17 per share in the second year.
     Remuneration to be paid to the broker for acting as agent will consist of a
     10% commission payable in cash and a two year broker's warrant exercisable
     into shares of the Company not exceeding 15% of the number of units issued
     to investors pursuant to the private placements. The broker's warrants will
     be exercisable at a price of $0.15 per share in the first year and $0.17
     per share in the second year.
 
          c) Invested an additional US $550,000 in BII debentures.
 
          d) Announced an extraordinary general meeting to the shareholders of
     the Company to be held on April 12, 1999, at which time the shareholders
     would vote on the Company's proposal to continue to the Province of British
     Columbia and to consolidate the Company's share capital on the basis of one
     post-consolidated share for each five pre-consolidated shares. The meeting
     date was subsequently postponed and has not yet been rescheduled. (See Item
     3 -- Legal Proceedings, regarding certain U.S. securities matters and the
     Company's current plans to continue back to British Columbia.)
 
YEARS ENDED DECEMBER 31, 1997 AND 1996
 
  Results of Operations
 
     A $0.13 loss per share in the fiscal year ended December 31, 1997 resulted
from cash and short-term investment earnings of $175,185 less expenses of
$759,182 and mineral property write-offs of $1,615,898. This is compared to a
$0.14 loss per share in the fiscal year ended December 31, 1996 from cash and
short-term investment earnings of $102,147, expenses of $826,609 and mineral
property write-offs of $534,853.
 
     Administrative costs in 1997 decreased 13% over 1996 as a result of the
Company cutting back promotional, travel, consultants and other costs.
 
  Liquidity and Capital Resources
 
     During 1997, the Company completed a special warrant placement of 5,000,000
units that raised net proceeds of $5,106,645 (see 1996 liquidity and capital
resources below) and raised $184,000 from the exercise of 200,000 warrants and
$126,400 from the exercise of 120,000 options.
 
                                       22
<PAGE>   26
 
  Balance Sheets
 
     Total cash and short-term investments at December 31, 1997 were $3,330,110
as compared to $1,742,133 (excluding $5,106,645 of cash in escrow) at December
31, 1996 and working capital decreased to $3,072,259 as at December 31, 1997
compared to $6,369,429 as at December 31, 1996.
 
     A total of $3,171,103 of mineral property costs were expended in Argentina
and initially capitalized during 1997.
 
YEARS ENDED DECEMBER 31, 1996 AND 1995
 
  Results of Operations
 
     A $0.14 loss per share in the fiscal year ended December 31, 1996 resulted
from cash and short-term investment earnings of $102,147 less expenses of
$826,609 and mineral property write-offs of $534,853. This is compared to a
$0.20 loss per share in the fiscal year ended December 31, 1995 from cash and
short-term investment earnings of $210,620, expenses of $606,230 and resource
property write-downs of $746,371.
 
     Administrative costs in 1996 increased 36.4% over 1995 as a result of the
Company's move to new office premises, the hiring of additional personnel,
advertising, promotional, exploration and travel costs incurred to support the
Company's mineral projects.
 
  Liquidity and Capital Resources
 
     On October 22, 1996, the Company completed the private placement of
5,000,000 Special Warrants at an issue price of $1.10 per Special Warrant. Each
Special Warrant entitled the holder to acquire, without further consideration,
one unit comprising one common share and one-half of a share purchase warrant,
with each whole warrant entitling the holder to purchase one additional share at
$1.30 per share for a two year period. The proceeds from the sale of Special
Warrants of $5,106,645, net of commissions and other offering costs, were being
held in escrow at December 31, 1996, pending completion of a prospectus
qualifying the common shares and share purchase warrants for distribution.
 
     The Company also granted the underwriters 250,000 special compensation
options as partial compensation for the placement of the Special Warrants. Each
special compensation option entitled the underwriter to acquire, without further
consideration, one compensation option. Each compensation option was exercisable
for one unit at a price of $1.10 per unit to January 31, 1999. Each unit
consists of one common share and one-half of a share purchase warrant, with each
whole warrant entitling the underwriter to purchase one additional share for
$1.30 per share to January 31, 1999.
 
     In January 1997, the Company issued the 5,000,000 shares and 5,000,000
one-half share purchase warrants upon exercise of the 5,000,000 Special
Warrants. 250,000 compensation options were also issued to the underwriter upon
the exercise of 250,000 special compensation options. In addition, the net
proceeds from the sale of Special Warrants, together with interest earned
thereon, were released to the Company.
 
     Additional financing during 1996 was received from the net proceeds of
$1,486,568 from three private placements during 1996 totaling 1,537,000 common
shares, $1,828,138 from the exercise of 2,022,250 warrants and $88,800 from the
exercise of 110,000 options granted to employees.
 
  Balance Sheets
 
     Total cash and short-term investments at December 31, 1996 were $1,742,133
(excluding $5,106,645 of cash in escrow) as compared to $1,796,691 at December
31, 1995 and working capital increased to $6,369,429 as at December 31, 1996
compared to $1,935,574 as at December 31, 1995.
 
     A total of $2,998,691 in mineral property costs were expended in Argentina
and initially capitalized during 1996.
 
                                       23
<PAGE>   27
 
ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not Applicable.
 
ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>  <C>                                                           <C>
1.   Auditors' Report to the Shareholders........................  F-2
2.   Consolidated Balance Sheets as at December 31, 1998 and       F-3
       1997......................................................
3.   Consolidated Statements of Operations and Deficit for the     F-4
       Years Ended December 31, 1998, 1997 and 1996..............
4.   Consolidated Statements of Cash Flows for the Years Ended     F-5
       December 31, 1998, 1997
       and 1996..................................................
5.   Notes to Consolidated Financial Statements..................  F-6
</TABLE>
 
                                       24
<PAGE>   28
 
                      CONSOLIDATED FINANCIAL STATEMENTS OF
 
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
                        (EXPRESSED IN CANADIAN DOLLARS)
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
                                       F-1
<PAGE>   29
 
                      AUDITORS' REPORT TO THE SHAREHOLDERS
 
     We have audited the consolidated balance sheets of Biometric Security Corp.
(formerly Sonoma Resource Corp.) as at December 31, 1998 and 1997 and the
consolidated statements of operations and deficit and cash flows for each of the
years in the three year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
 
     In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 1998 in accordance with
generally accepted accounting principles in the United States.
 
                                            Chartered Accountants
 
Vancouver, Canada
February 23, 1999
 
                                       F-2
<PAGE>   30
 
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)

                          CONSOLIDATED BALANCE SHEETS
                        (EXPRESSED IN CANADIAN DOLLARS)
                           DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                 1998           1997
                                                              -----------    ----------
<S>                                                           <C>            <C>
                           ASSETS
Current assets:
     Cash...................................................  $   245,182    $3,330,110
     Amounts receivable.....................................       55,076        19,002
     Prepaid expenses.......................................        9,257         6,252
                                                              -----------    ----------
                                                                  309,515     3,355,364
Equipment and leasehold improvements (note 3)...............       60,758       248,213
Mineral properties (note 4).................................           --     4,670,516
Investment (note 5).........................................    3,637,219            --
                                                              -----------    ----------
                                                              $ 4,007,492    $8,274,093
                                                              ===========    ==========
            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued liabilities...............  $   148,262    $  283,105
     Loan payable (note 6)..................................      150,775            --
                                                              -----------    ----------
                                                                  299,037       283,105
Shareholders' equity:
     Share capital (note 7):
          Authorized:
          Unlimited (1997 -- 100,000,000) common shares
          Issued:
          20,834,412 (1997 -- 16,448,962) common shares.....   13,128,263    12,387,691
     Advances on share subscriptions (note 7(b))............      660,592            --
     Deficit................................................  (10,080,400)   (4,396,703)
                                                              -----------    ----------
                                                                3,708,455     7,990,988
Continuing operations (note 1)
Commitments and contingencies (notes 5 and 13)
Subsequent events (notes 5, 6, 7 and 14)....................
                                                              -----------    ----------
                                                              $ 4,007,492    $8,274,093
                                                              ===========    ==========
</TABLE>
 
On behalf of the Board:
 
                         , Director
 
                         , Director
 
          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   31
 
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)

               CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                             1998          1997          1996
                                                         ------------   -----------   -----------
<S>                                                      <C>            <C>           <C>
Revenue:
     Interest and other income.........................  $    159,118   $   175,185   $    62,670
     Gain on disposal of marketable securities.........            --            --        39,477
                                                         ------------   -----------   -----------
                                                              159,118       175,185       102,147
General and administrative expenses:
     Business consultants..............................        78,306        87,345       158,305
     Depreciation and depletion........................         9,858        67,100         8,500
     Finder's fee (note 5).............................        99,822            --            --
     Foreign exchange gain.............................       (80,041)      (20,198)      (20,630)
     Interest and bank charges.........................        14,449         2,159         2,507
     Legal, audit and accounting.......................       563,234       141,256        66,461
     Management fees...................................       120,059       127,121       164,451
     Office expense....................................       113,851       113,570       136,891
     Public listing....................................        66,153        37,035        38,080
     Salaries, wages and administration................        56,129        61,979        68,841
     Travel, accommodation and promotion...............       159,891       103,332       203,203
                                                         ------------   -----------   -----------
                                                            1,201,711       720,699       826,609
                                                         ------------   -----------   -----------
                                                           (1,042,593)     (545,514)     (724,462)
Other expenses:
     Write-off of mineral properties (note 4)..........     4,592,237     1,615,898       534,853
     Mineral exploration...............................            --        16,395            --
     Loss on disposal of equipment.....................        48,867        22,088            --
                                                         ------------   -----------   -----------
                                                            4,641,104     1,654,381       534,853
                                                         ------------   -----------   -----------
Loss for the year......................................    (5,683,697)   (2,199,895)   (1,259,315)
Deficit, beginning of year.............................    (4,396,703)   (2,196,808)     (937,493)
                                                         ------------   -----------   -----------
Deficit, end of year...................................  $(10,080,400)  $(4,396,703)  $(2,196,808)
                                                         ============   ===========   ===========
Loss per share.........................................  $      (0.30)  $     (0.13)  $     (0.14)
                                                         ============   ===========   ===========
Weighted average number of shares......................    18,825,977    16,170,395     8,933,410
                                                         ============   ===========   ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>   32
 
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                             1998          1997          1996
                                                          -----------   -----------   -----------
<S>                                                       <C>           <C>           <C>
Cash flows from operating activities:
  Loss for the year.....................................  $(5,683,697)  $(2,199,895)  $(1,259,315)
  Adjustments to reconcile loss for the year to net cash
     used in operating activities:
       Write-off of mineral properties..................    4,592,237     1,615,898       534,853
       Loss on disposal of equipment....................       48,867        22,088            --
       Depreciation and depletion.......................        9,858        67,100         8,500
       Accrued interest income on investment............      (79,989)           --            --
       Non-cash fees and expenses.......................      112,322            --            --
       Gain on disposal of marketable securities........           --            --       (39,477)
       Decrease (increase) in amounts receivable........      (36,074)       29,846       107,230
       Decrease (increase) in prepaid expenses..........       (3,005)       36,303        31,331
       Increase (decrease) in accounts payable and
          accrued liabilities...........................     (134,844)     (287,647)      479,671
                                                          -----------   -----------   -----------
Net cash used in operating activities...................   (1,174,325)     (716,307)     (137,207)
Cash flows from investing activities:
  Proceeds on sale of marketable securities.............           --            --       193,527
  Equipment and leasehold improvements..................      (22,781)      (79,658)     (223,643)
  Proceeds on disposal of equipment and leasehold
     improvements.......................................      151,512            --            --
  Mineral properties....................................     (145,306)   (3,033,103)   (2,998,691)
  Security deposit (paid) recovered.....................      185,335            --      (138,000)
  Proceeds on sale of mineral properties................       38,250            --            --
  Investment............................................   (3,557,230)           --            --
                                                          -----------   -----------   -----------
Net cash used in investing activities...................   (3,350,220)   (3,112,761)   (3,166,807)
Cash flows from financing activities:
  Loan payable..........................................      250,000            --            --
  Repayment of loan payable.............................      (99,225)           --            --
  Issuance of common shares.............................      628,250     5,417,045     3,403,506
  Advances on share subscriptions.......................      660,592            --            --
                                                          -----------   -----------   -----------
Net cash provided by financing activities...............    1,439,617     5,417,045     3,403,506
                                                          -----------   -----------   -----------
Increase (decrease) in cash.............................   (3,084,928)    1,587,977        99,492
Cash, beginning of year.................................    3,330,110     1,742,133     1,642,641
                                                          -----------   -----------   -----------
Cash, end of year.......................................  $   245,182   $ 3,330,110   $ 1,742,133
                                                          ===========   ===========   ===========
</TABLE>
 
---------------
 
   
Supplementary cash flow information (note 9)
    
 
          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   33
 
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
1.  CONTINUING OPERATIONS:
 
     The Company was incorporated under the laws of British Columbia, Canada.
During 1998, the Company changed its principal business activity from the
exploration and development of resource properties to an investment holding
company, with its principal holding being its investment in Biometric
Identification Inc. ("BII") (note 5). BII's principal business activity is the
development, manufacture and marketing of fingerprint identification systems in
the United States. BII has not yet achieved profitable operations. In connection
with this change in business activity during 1998, the Company changed its name
from Sonoma Resource Corp. to Biometric Security Corp., and on November 10,
1998, the Company was continued under the laws of the State of Wyoming (also see
note 14(a)).
 
     These financial statements have been prepared in accordance with accounting
principles applicable to a going concern, which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary course of
business. At December 31, 1998, the Company has a net working capital position
of approximately $10,000, which is not sufficient to meet its commitments or
fund ongoing operations. The ability of the Company to settle its liabilities as
they come due and to fund its commitments and ongoing operations is dependent
upon the ability of the Company to obtain additional equity financing (also see
notes 7(b) and 14(b)). The recoverability of the Company's investment in BII is
dependent upon the establishment of profitable commercial operations in BII, the
ability of the Company to obtain additional debt or equity financing to complete
the acquisition of BII or the proceeds from the disposition of the Company's
interest in BII.
 
2.  SIGNIFICANT ACCOUNTING POLICIES:
 
  (a) Basis of presentation:
 
     These consolidated financial statements have been prepared in accordance
with accounting principles and practices that are generally accepted in the
United States, which conform, in all material respects, with those generally
accepted in Canada, except as explained in note 15.
 
  (b) Basis of consolidation:
 
     The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are directly or indirectly wholly-owned, and
include (with the jurisdiction of incorporation in brackets):
 
   
          Sonoma Resource de Argentina S.A. (Argentina)
    
        Sonoma Resource (Bermuda) Ltd. (Bermuda)
        Cerro Toro Mining (Barbados) Ltd. (Barbados)
        Cerro Toro S.A. (Argentina)
        Castano Mining (Barbados)
        Castano S.A. (Argentina)
 
     All intercompany balances and transactions have been eliminated.
 
  (c) Equipment and leasehold improvements:
 
     Equipment and leasehold improvements are stated at cost and depreciated
over their estimated useful lives on a declining-balance basis at 15% per year.
 
                                       F-6
<PAGE>   34
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
  (d) Mineral properties:
 
     Mineral property acquisition costs and related exploration and development
expenditures are deferred until the property is placed into production, sold or
abandoned. These costs will be amortized over the estimated life of the property
following commencement of commercial production or written off if the property
is sold, allowed to lapse or abandoned. Administration expenditures are expensed
in the period incurred.
 
     Mineral property acquisition costs include the cash consideration and the
fair market value of common shares issued for mineral property interests. A
property acquired under an option agreement or by joint venture, where payments
are made at the sole discretion of the Company, is recorded in the accounts at
the time of payment.
 
     On an on-going basis, the Company evaluates the status of its mineral
properties based on results to date to determine the nature of exploration and
development work that is warranted in the future. If there is little prospect of
further work on a property being carried out, the deferred costs related to that
property are written down to their estimated recoverable amount.
 
     The amounts shown for mineral properties reflect costs incurred to date,
less write-offs and recoveries, and are not intended to reflect present or
future values.
 
  (e) Investments:
 
     The investment in BII (note 5) is classified by the Company as a
held-to-maturity investment, as BII is not a public company and the Company
intends to hold the debt securities until maturity, or until conversion.
Held-to-maturity investments are recorded at cost. A decline in value of
held-to-maturity investments that is deemed to be other than temporary results
in a reduction in the carrying amount to fair value. The impairment would be
charged to earnings in the period such determination is made and a new cost
basis for the investment is established. Dividend and interest income are
recognized when earned.
 
  (f) Stock options:
 
     The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, in accounting for its stock
options. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price.
 
  (g) Loss per share:
 
     Basic loss per share is calculated using the weighted average number of
shares outstanding during the year. Diluted loss per share has not been
presented as the effect on basic loss per share would be anti-dilutive.
 
  (h) Foreign currency translation:
 
     Transactions of the Company and its subsidiaries that are denominated in
foreign currencies are recorded in Canadian dollars at exchange rates in effect
at the related transaction dates. Monetary assets and liabilities denominated in
foreign currencies are adjusted to reflect exchange rates at the balance sheet
date. Exchange gains and losses arising on the translation of monetary assets
and liabilities are included in the determination of operations for the year.
 
                                       F-7
<PAGE>   35
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
  (i) Use of estimates:
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates
relate to the determination of impairment of mineral properties and equipment,
useful lives for depreciation and the carrying value of the investment in BII.
Actual results could differ from those estimates.
 
  (j) Comparative figures:
 
   
     Certain of the prior years' comparative figures have been reclassified to
conform with the presentation adopted for 1998.
    
 
3.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
 
<TABLE>
<CAPTION>
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Equipment...................................................  $ 67,759    $ 71,320
Automotive equipment........................................        --     209,179
Leasehold improvements......................................    19,138      15,941
                                                              --------    --------
                                                                86,897     296,440
Accumulated depreciation....................................   (26,139)    (48,227)
                                                              --------    --------
                                                              $ 60,758    $248,213
                                                              ========    ========
</TABLE>
 
                                       F-8
<PAGE>   36
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
4. MINERAL PROPERTIES:
 
     The continuity of mineral property acquisition costs, exploration and
development expenditures, write-offs and deferred expenditures at year end is as
follows:
 
   
<TABLE>
<CAPTION>
                                                                      CHUBUT AND
                                         CERRO TORO      CASTANO       SAN LUIS
                                       PROPERTIES(A)    GROUP(B)    PROPERTIES(C)    OTHER(C)      TOTAL
                                       --------------   ---------   --------------   ---------   ----------
<S>                                    <C>              <C>         <C>              <C>         <C>
Balance, December 31, 1997...........    $3,983,092     $      --      $687,424      $     --    $4,670,516
  Exploration and development
     expenditures:
       Access costs..................           772            --            --            --           772
       Assays........................            --            --         2,882            --         2,882
       Communication.................            --            --           332            --           332
       Contract labour and
          supervision................         5,737            --            --            --         5,737
       Data acquisition and
          analysis...................           941            --           596            --         1,537
       Equipment and field
          supplies...................         5,231            --           259            --         5,490
       Field administration..........        21,674            --            --            --        21,674
       Field car rental and
          transportation.............         3,271            --           389            --         3,660
       Geological and geophysical....        40,471            --        28,810            --        69,281
       Insurance.....................         5,762            --            --            --         5,762
       Legal and other...............        19,552            --         6,687            --        26,239
       Travel and accommodation......         1,669            --           271            --         1,940
                                         ----------     ---------      --------      --------    ----------
                                            105,080            --        40,226            --       145,306
                                         ----------     ---------      --------      --------    ----------
                                          4,088,172            --       727,650            --     4,815,822
  Recovery of security deposit.......            --      (185,335)           --            --      (185,335)
  Deposit received on option
     agreement.......................            --            --            --       (38,250)      (38,250)
  Write-offs.........................    (4,088,172)      185,335      (727,650)       38,250    (4,592,237)
                                         ----------     ---------      --------      --------    ----------
  Balance, December 31, 1998.........    $       --     $      --      $     --      $     --    $       --
                                         ==========     =========      ========      ========    ==========
</TABLE>
    
 
                                       F-9
<PAGE>   37
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                                      CHUBUT AND
                                        CERRO TORO      CASTANO        SAN LUIS
                                      PROPERTIES(A)     GROUP(B)    PROPERTIES(C)    OTHER(C)      TOTAL
                                      --------------   ----------   --------------   ---------   ----------
<S>                                   <C>              <C>          <C>              <C>         <C>
Balance, December 31, 1996..........    $1,591,602     $1,000,818      $217,877      $305,014    $3,115,311
Acquisition costs...................         7,610        165,308        55,726        31,637       260,281
Exploration and development
  expenditures:
     Access costs...................        66,273             --        27,030            --        93,303
     Assays.........................       109,858             --            --            --       109,858
     Camp...........................         2,121             --            --            --         2,121
     Communication..................        15,802             --            --            --        15,802
     Contract drilling..............     1,203,985             --            --            --     1,203,985
     Contract labour and
       supervision..................        82,045             --        16,685            --        98,730
     Data acquisition and
       analysis.....................        19,512             --         2,364        22,516        44,392
     Equipment and field supplies...       156,120             --        42,676           512       199,308
     Field administration...........       149,318             --           860            --       150,178
     Field car rental and
       transportation...............        77,563             --        15,021           364        92,948
     Geological and geophysical.....       394,316          1,400       200,277        30,280       626,273
     Insurance......................        23,369             --         1,308           707        25,384
     Legal and other................        19,852             --        33,002        55,620       108,474
     Travel and accommodation.......        63,746             --        74,598         1,722       140,066
                                        ----------     ----------      --------      --------    ----------
                                         2,383,880          1,400       413,821       111,721     2,910,822
                                        ----------     ----------      --------      --------    ----------
                                         3,983,092      1,167,526       687,424       448,372     6,286,414
Write-offs..........................            --     (1,167,526)           --      (448,372)   (1,615,898)
                                        ----------     ----------      --------      --------    ----------
Balance, December 31, 1997..........    $3,983,092     $       --      $687,424      $     --    $4,670,516
                                        ==========     ==========      ========      ========    ==========
</TABLE>
 
A brief description of the Company's mineral properties is as follows:
 
  (a) Cerro Toro Properties:
 
     On February 15, 1995, the Company filed three exploration permits with the
regulatory authorities in San Juan Province, Argentina covering 1,845 hectares
located in San Juan Province. The Company was subsequently notified that 100% of
the rights of ownership established by the procedures of the Province belong to
the Company.
 
     During 1998, all deferred expenditures relating to the Cerro Toro
Properties were written off.
 
  (b) Castano Group:
 
     In 1996, the Company entered into a purchase/option agreement to acquire
100% of the rights and interests in the Castano Group of mineral properties
located in San Juan Province, Argentina. In 1997, the Company terminated the
purchase/option agreement in accordance with the provisions provided therein and
wrote off the remaining deferred expenditures on the Castano Group. During 1998,
the Company recovered a security deposit that had previously been written off.
 
                                      F-10
<PAGE>   38
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
  (c) Other Argentina properties:
 
     During 1995, the Company staked and applied for a number of cateos and
manifestaciones within Cordova, San Luis, Chubut and Santa Cruz provinces, all
of which were of a grass roots nature. At December 31, 1997, the Company had
staked and applied for 13 cateos and 20 manifestaciones in the San Luis and
Chubut provinces.
 
     In 1997, the Company wrote-off costs incurred relating to properties in
provinces other than San Luis and Chubut that the Company did not intend to
pursue.
 
     As the Cordova and San Luis cateos and manifestaciones were not renewed
during 1999, all deferred expenditures relating to these properties were written
off during 1998.
 
     During 1998, the Company entered into a letter agreement to grant Inlet
Resources Ltd. ("Inlet") an option to purchase up to a 100% interest in the
Company's Argentine properties. Under the terms of the agreement, the Company
granted Inlet an option to purchase up to 90% of the properties, over a three
year period, with a buyout of the remaining 10% for U.S. $2,000,000. During the
first year, the agreement requires Inlet to pay the Company U.S. $150,000 in
stages, issue the Company 100,000 shares and complete a U.S. $650,000 work
program, to earn a 50% interest in the properties. During the second and third
years, the agreement provides that Inlet will pay the Company a total of U.S.
$600,000 in stages, issue 200,000 shares and complete work commitments totalling
U.S. $1,500,000 to earn an additional 40% interest in the properties. To
December 31, 1998, the Company received a cash deposit of U.S. $25,000 relating
to the option agreement.
 
5.  INVESTMENT:
 
<TABLE>
<S>                                                           <C>
Investment, at cost.........................................  $3,557,230
  Accrued interest receivable...............................      79,989
                                                              ----------
                                                              $3,637,219
                                                              ==========
</TABLE>
 
     During 1998, the Company entered into an agreement to purchase convertible
debentures entitling the Company to acquire up to a 45% interest in Biometric
Identification Inc. ("BII"), a private California-based company in the business
of developing, manufacturing and marketing fingerprint recognition technology.
Under the terms of the agreement, the Company has the right to acquire up to
U.S. $5,000,000 of convertible debentures to be issued by BII. If all such
debentures are acquired and converted into shares of BII, the Company will hold
approximately 45% of the issued shares of BII.
 
     This investment was initiated by a related party which assigned its
interest to the Company in exchange for a fee up to U.S. $145,000, plus
reimbursement of its expenses. The related party elected to take this fee in the
form of 715,575 common shares at a deemed price of $0.30 per share. These shares
will be issued in pro-rata tranches on the same basis the debentures are
purchased by the Company.
 
     The debentures have a term of five years from the date of the closing of
the first acquisition and bear interest at the lowest interest rate imputed
under the U.S. Internal Revenue Code.
 
     At December 31, 1998, the Company had acquired debentures of BII totalling
U.S. $2,325,000 in accordance with the terms of the agreement and had issued
250,450 shares and allotted 82,292 shares, at a total value of $99,822, to the
related party. Additional debenture acquisitions and share issuances for finders
fees under the terms of the original agreement are scheduled as follows:
 
                                      F-11
<PAGE>   39
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                          DEBENTURE
DATES                                                  AMOUNTS (U.S. $)   SHARES
-----                                                  ----------------   -------
<S>                                                    <C>                <C>
February 1, 1999 (paid)..............................     $  550,000       78,713
February 22, 1999....................................        125,000       17,889
March 12, 1999.......................................        500,000       71,558
May 12, 1999.........................................      1,500,000      214,673
                                                          ----------      -------
                                                          $2,675,000      382,833
                                                          ==========      =======
</TABLE>
 
     Subsequent to December 31, 1998, the debenture acquisitions scheduled to be
made on February 22, 1999 and March 12, 1999 were deferred, by mutual agreement,
until April 2, 1999.
 
6.  LOAN PAYABLE:
 
     During 1998, a company controlled by a director loaned the Company a total
of $250,000. The loan is unsecured, non-interest bearing and was due on December
26, 1998. A total of $99,225 of the loan was repaid on December 29, 1998, and
the balance of the loan of $150,775 was repaid subsequent to December 31, 1998.
 
     The Company also allotted 65,789 shares at a deemed price of $0.19 per
share at December 31, 1998, as allowed for under the rules of the Vancouver
Stock Exchange, as consideration for the loan.
 
7.  SHARE CAPITAL:
 
  (a) Issued:
 
<TABLE>
<CAPTION>
                                                               NUMBER
                                                             OF SHARES       AMOUNT
                                                             ----------    -----------
<S>                                                          <C>           <C>
Balance at December 31, 1996...............................  11,128,962    $ 6,970,646
Issued during the year for cash by way of:
     Private placement of special warrants, net of issue
       costs...............................................   5,000,000      5,106,645
     Exercise of warrants..................................     200,000        184,000
     Exercise of options...................................     120,000        126,400
                                                             ----------    -----------
Balance at December 31, 1997...............................  16,448,962     12,387,691
Issued during the year for cash by way of:
     Private placements....................................   4,035,000        605,250
     Exercise of options...................................     100,000         23,000
Issued during the year for finder's fee (note 5)...........     250,450         75,135
                                                             ----------    -----------
                                                             20,834,412     13,091,076
Allotted during the year for:
     Finder's fee (note 5).................................      82,292         24,687
     Carrying charges (note 6).............................      65,789         12,500
                                                             ----------    -----------
Balance at December 31, 1998...............................  20,982,493    $13,128,263
                                                             ==========    ===========
</TABLE>
 
     During 1997, the Company issued the 5,000,000 common shares and 5,000,000
one-half share purchase warrants upon exercise of 5,000,000 previously issued
special warrants. In addition, 250,000 compensation options were issued to the
underwriter upon the exercise of 250,000 special compensation options granted to
the underwriter in connection with this special warrant private placement. Each
compensation option entitles the underwriter to acquire a unit, consisting of
one share and one-half of a share purchase warrant, at an exercise price of
$1.10 per share prior to January 20, 1999. Each whole warrant entitles the
underwriter to
 
                                      F-12
<PAGE>   40
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
acquire one share at an exercise price of $1.30 prior to January 20, 1999.
Subsequent to December 31, 1998, these compensation options expired unexercised.
 
     During 1998, the Company completed a 3,375,000 unit private placement at a
price of $0.15 per unit and a 660,000 unit private placement at a price of $0.15
per unit. Each unit consisted of one common share and one non-transferable share
purchase warrant. Each warrant is exercisable for a period of two years and
entitles the holder to purchase one additional common share at a price of $0.15
per share in the first year and $0.17 per share in the second year.
 
  (b) Advances on share subscriptions:
 
     At December 31, 1998, the Company had received advances on share
subscriptions for 4,403,950 units at $0.15 per unit in connection with:
 
   
- a brokered private placement of 6,666,666 units at $0.15 per unit for total
  proceeds of $1,000,000; and
    
 
   
- a non-brokered private placement of 5,000,000 units at $0.15 per unit for
  total proceeds of $750,000.
    
 
     Each unit consists of one common share and one non-transferable share
purchase warrant exercisable for a period of two years. Each warrant will be
exercisable at a price of $0.15 per share in the first year and $0.17 per share
in the second year. The agent will be paid a 10% commission payable in cash and
brokers' warrants exercisable into shares of the Company for a period of two
years not exceeding 15% of the number of units issued to investors pursuant to
the private placements. The brokers' warrants will be exercisable at a price of
$0.15 per share the first year and $0.17 per share in the second year.
 
     Subsequent to December 31, 1998, the Company received the additional
$1,089,408 of proceeds, paid the $100,000 commission, issued the 11,666,666
shares and share purchase warrants and issued the 1,000,000 brokers' warrants.
 
  (c) Share purchase warrants:
 
     The continuity of share purchase warrants during 1998 is as follows:
 
   
<TABLE>
<CAPTION>
                                            BALANCE,                                              BALANCE,
                              EXERCISE    DECEMBER 31,                            EXPIRED OR    DECEMBER 31,
EXPIRY DATE                    PRICE          1997         GRANTED    EXERCISED    CANCELLED        1998
-----------                   --------    ------------     -------    ---------   ----------    ------------
<S>                          <C>          <C>             <C>         <C>         <C>           <C>
January 26, 1998...........  $     1.47        37,000            --       --         (37,000)            --
August 21, 1998............        1.25     1,400,000            --       --      (1,400,000)            --
October 22, 1998...........        1.30     2,500,000            --       --      (2,500,000)            --
October 22, 1998/1999......   0.15/0.17            --       660,000       --              --        660,000
March 31, 1999/2000........   0.15/0.17            --     3,375,000       --              --      3,375,000
                                            ---------     ---------      ---      ----------      ---------
                                            3,937,000     4,035,000       --      (3,937,000)     4,035,000
                                            =========     =========      ===      ==========      =========
</TABLE>
    
 
                                      F-13
<PAGE>   41
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
     The continuity of share purchase warrants during 1997 is as follows:
 
<TABLE>
<CAPTION>
                                           BALANCE,                                              BALANCE,
                             EXERCISE    DECEMBER 31,                            EXPIRED OR    DECEMBER 31,
EXPIRY DATE                   PRICE          1996         GRANTED    EXERCISED    CANCELLED        1997
-----------                  --------    ------------     -------    ---------   ----------    ------------
<S>                         <C>          <C>             <C>         <C>         <C>           <C>
January 26, 1997/1998.....  $1.28/1.47        37,000            --         --            --         37,000
June 22, 1997.............        0.92       700,000            --   (100,000)     (600,000)            --
June 29, 1997.............        0.92       300,000            --         --      (300,000)            --
September 14, 1997........        0.92       150,000            --         --      (150,000)            --
December 5, 1997..........        0.92       100,000            --   (100,000)           --             --
August 21, 1998...........        1.25     1,400,000            --         --            --      1,400,000
October 22, 1998..........        1.30            --     2,500,000         --            --      2,500,000
                                           ---------     ---------   --------    ----------      ---------
                                           2,687,000     2,500,000   (200,000)   (1,050,000)     3,937,000
                                           =========     =========   ========    ==========      =========
</TABLE>
 
  (d) Stock options:
 
     (i) Continuity:
 
     The continuity of stock options during 1998 is as follows:
 
<TABLE>
<CAPTION>
                                          BALANCE,                                              BALANCE,
                            EXERCISE    DECEMBER 31,                            EXPIRED OR    DECEMBER 31,
EXPIRY DATE                   PRICE         1997         GRANTED    EXERCISED    CANCELLED        1998
-----------                 --------    ------------     -------    ---------   ----------    ------------
<S>                         <C>         <C>             <C>         <C>         <C>           <C>
April 27, 1998............    $1.00         100,000            --         --      (100,000)(a)          --
September 14, 1998........     0.34          30,000            --         --       (30,000)(a)          --
October 30, 1999..........     1.33         387,261            --         --      (387,261)(a)          --
January 21, 2000..........     0.34         130,000            --         --      (130,000)(a)          --
January 21, 2000..........     1.36         390,000            --         --      (390,000)(a)          --
July 6, 2000..............     0.32              --        50,000         --            --         50,000
August 28, 2000...........     0.20              --       100,000         --            --        100,000
January 28, 2001..........     0.23              --     1,640,000(a) (100,000)    (285,000)     1,255,000
                                          ---------     ---------   --------    ----------      ---------
                                          1,037,261     1,790,000   (100,000)   (1,322,261)     1,405,000
                                          =========     =========   ========    ==========      =========
</TABLE>
 
---------------
(a) During 1998, these 1,037,261 outstanding options were cancelled and replaced
    with the 1,640,000 options at $0.23 per share expiring January 28, 2001.
 
     The continuity of stock options during 1997 is as follows:
 
<TABLE>
<CAPTION>
                                            BALANCE,                                             BALANCE,
                              EXERCISE    DECEMBER 31,                           EXPIRED OR    DECEMBER 31,
EXPIRY DATE                     PRICE         1996        GRANTED    EXERCISED    CANCELLED        1997
-----------                   --------    ------------    -------    ---------   ----------    ------------
<S>                           <C>         <C>             <C>        <C>         <C>           <C>
February 16, 1997...........    $0.90          40,000          --     (40,000)           --             --
January 30, 1998............     0.91          50,000          --          --       (50,000)            --
April 27, 1998..............     1.00         100,000          --          --            --        100,000
September 14, 1998..........     1.10          70,000          --     (40,000)      (30,000)(b)          --
September 14, 1998..........     0.34              --      30,000(b)       --            --         30,000
December 8, 1998............     0.97         373,635          --          --      (373,635)            --
July 31, 1999...............     1.12          10,000          --          --       (10,000)            --
September 25, 1999..........     1.16          50,000          --     (40,000)      (10,000)            --
October 30, 1999............     1.33         387,261          --          --            --        387,261
January 21, 2000............     1.36              --     620,000          --      (230,000)(b)     390,000
January 21, 2000............     0.34              --     230,000(b)       --      (100,000)       130,000
                                            ---------     -------    --------    ----------      ---------
                                            1,080,896     880,000    (120,000)     (803,635)     1,037,261
                                            =========     =======    ========    ==========      =========
</TABLE>
 
---------------
 
(b) During 1997, these options were repriced to $0.34 per share.
 
                                      F-14
<PAGE>   42
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
         (ii) Compensation expense:
 
     The Company's Board of Directors grants stock options to its officers,
directors and key employees in accordance with the rules prescribed by the
Vancouver Stock Exchange. Stock options are granted with an exercise price equal
to the stock's quoted value on the Vancouver Stock Exchange at the date of
grant. Stock options granted generally have varying terms of up to three years
and vest and become fully exercisable from the date of grant.
 
     The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $0.16, $0.17 and $0.89 on the date of grant, using the
Black Scholes option-pricing model with the following weighted-average
assumptions:
 
   
<TABLE>
<CAPTION>
                                                              1998   1997   1996
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Expected dividend yield.....................................    0%     0%     0%
Risk-free interest rate.....................................  6.2%   5.0%   6.1%
Expected life (years).......................................    2      2      2
Expected volatility over expected life......................  139%   139%   139%
</TABLE>
    
 
     The Company applies APB Opinion No. 25 in accounting for granting stock
options and accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("FAS 123"), the Company's loss for the year would have increased
to the pro forma amounts indicated below:
 
   
<TABLE>
<CAPTION>
                                                 1998           1997           1996
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Loss for the year:
     As reported............................  $(5,683,697)   $(2,199,895)   $(1,259,315)
     Compensation expense under FAS 123.....      286,558        152,888        458,384
                                              -----------    -----------    -----------
Pro forma loss for the year.................  $(5,970,255)   $(2,352,783)   $(1,717,699)
                                              ===========    ===========    ===========
Pro forma loss per share....................  $     (0.32)   $     (0.15)   $     (0.19)
                                              ===========    ===========    ===========
</TABLE>
    
 
8.  FINANCIAL INSTRUMENTS:
 
     The fair values of the Company's cash, amounts receivable, accounts payable
and accrued liabilities and loan payable approximate their carrying amounts
because of the immediate or short term to maturity of these financial
instruments.
 
9.  NON-CASH FINANCING AND INVESTING ACTIVITIES:
 
     The Company has the following non-cash financing and investing activities:
 
<TABLE>
<CAPTION>
                                                       1998        1997        1996
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Financing activities:
     Shares issued and allotted for finders fee....  $ 99,822    $     --    $     --
     Shares allotted as consideration for loan
       payable.....................................    12,500          --          --
                                                     --------    --------    --------
                                                     $112,322    $     --    $     --
                                                     ========    ========    ========
Investing activities:
     Accrued interest income on investment.........  $(79,989)   $     --    $     --
                                                     ========    ========    ========
</TABLE>
 
                                      F-15
<PAGE>   43
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
10.  SEGMENTED INFORMATION:
 
     During 1998, the Company adopted the accounting standards related to
segment disclosures recently approved by the accounting standard-setting bodies
in the United States and Canada. The information presented below is consistent
with these standards. The Company has not allocated general and administrative
expenses from the corporate segment.
 
  (a) Operating segments:
 
     The Company has determined its operating segments to be mineral exploration
and development, and corporate, which includes holding investments, based on the
way management organizes and manages its business.
 
<TABLE>
<CAPTION>
                                                         MINERAL
                                                     EXPLORATION AND
1998                                                   DEVELOPMENT       CORPORATE        TOTAL
----                                                 ---------------    -----------    -----------
<S>                                                  <C>                <C>            <C>
Revenue............................................    $        --      $   159,118    $   159,118
General and administrative expenses................             --        1,201,711      1,201,711
Other expenses.....................................      4,592,237           48,867      4,641,104
                                                       -----------      -----------    -----------
Loss for the year..................................    $(4,592,237)     $(1,091,460)   $(5,683,697)
                                                       ===========      ===========    ===========
Capital expenditures (recovered)...................    $   (78,279)     $ 3,428,299    $ 3,350,220
                                                       ===========      ===========    ===========
Identifiable assets................................    $        --      $ 4,007,492    $ 4,007,492
                                                       ===========      ===========    ===========
1997
Revenue............................................    $        --      $   175,185    $   175,185
General and administrative expenses................             --          720,699        720,699
Other expenses.....................................      1,632,293           22,088      1,654,381
                                                       -----------      -----------    -----------
Loss for the year..................................    $(1,632,293)     $  (567,602)   $(2,199,895)
                                                       ===========      ===========    ===========
Capital expenditures...............................    $ 3,033,103      $    79,658    $ 3,112,761
                                                       ===========      ===========    ===========
Identifiable assets................................    $ 4,670,516      $ 3,603,577    $ 8,274,093
                                                       ===========      ===========    ===========
1996
Revenue............................................    $        --      $   102,147    $   102,147
General and administrative expenses................             --          826,609        826,609
Other expenses.....................................        534,853               --        534,853
                                                       -----------      -----------    -----------
Loss for the year..................................    $  (534,853)     $  (724,462)   $(1,259,315)
                                                       ===========      ===========    ===========
Capital expenditures...............................    $ 3,136,691      $    30,116    $ 3,166,807
                                                       ===========      ===========    ===========
</TABLE>
 
  (b) Geographic information:
 
     As previously disclosed (note 4), all of the Company's mineral exploration
and development activities during 1996 through 1998 were in Argentina.
 
     Except for the Company's investment in BII (note 5) and related accrued
interest income and foreign exchange gain, substantially all of the Company's
corporate activities during 1996 through 1998 were in Canada.
 
                                      F-16
<PAGE>   44
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
11.  RELATED PARTY TRANSACTIONS:
 
     During 1998, fees of $156,620 (1997 -- $233,348; 1996 -- $324,500) were
charged by certain directors or companies controlled by them for management,
consulting, accounting and administrative services. Management believes the
costs of related party services approximate amounts that would have been paid
for similar services rendered by unrelated parties.
 
     Included in accounts payable and accrued liabilities at December 31, 1998
is $15,044 (1997 -- $35,332) payable to a director and a company controlled by a
director related to the above fees.
 
12.  INCOME TAXES:
 
     As at December 31, 1998, the Company has approximately $3,000,000 of losses
for Canadian income tax purposes that expire between 2000 and 2005 and that may
be available to reduce taxable income in Canada in future years. In addition,
the Company had deducted approximately $8,000,000 for book purposes in excess of
amounts deducted for tax purposes, primarily for expenditures incurred on the
Company's mineral properties and equipment. The Company has taken a valuation
allowance of the full amount of the tax benefit thereon due to the uncertainty
of whether these deferred tax assets will be realized.
 
13.  CONTINGENCIES:
 
  (a) Uncertainty due to the Year 2000 Issue:
 
     The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effect of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of investees, suppliers or other
third parties, will be fully resolved.
 
  (b) Contingent liability:
 
     As disclosed elsewhere in these financial statements (notes 1 and 14(a)),
the Company continued its jurisdiction of incorporation from British Columbia to
the State of Wyoming, effective November 10, 1998, and has proposed to continue
from Wyoming back into British Columbia in 1999. In the course of their review
of the Company's proposal, the United States Securities and Exchange Commission
(the "SEC") has advised the Company that they believe the original continuance
to Wyoming was an event that would have required the filing of a registration
statement with the SEC. As a result, the Company appears to have been in
technical violation of the U.S. Securities Act of 1933 (the "Act") and United
States holders of shares of the Company, at the time of the original continuance
to Wyoming may have common law remedies under the Act. In addition, the Company
may be required to offer such United States holders of shares of the Company the
right to have their shares repurchased by the Company at their fair market value
at the time of the original continuance.
 
     The Company is currently reviewing its options to resolve this matter. No
provision has been recorded in the accounts for any contingent loss, as the
outcome is not determinable at this time.
 
                                      F-17
<PAGE>   45
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
14.  SUBSEQUENT EVENTS:
 
  (a) Corporate continuance:
 
     Subsequent to December 31, 1998, the Company announced an extraordinary
general meeting of the shareholders of the Company to be held on April 12, 1999,
at which time the shareholders will vote on the Company's proposal to continue
the Company to the Province of British Columbia and to consolidate the Company's
share capital on the basis of one post-consolidated share for each five
pre-consolidated shares. The meeting date was subsequently postponed and has not
yet been rescheduled.
 
  (b) Private placement:
 
     Subsequent to December 31, 1998, the Company announced, subject to
regulatory approval, a best-efforts brokered private placement of up to
11,666,666 units at $0.15 per unit to raise gross proceeds of up to $1,750,000.
Each unit will consist of one common share and one non-transferable share
purchase warrant exercisable at $0.15 per share in the first year and $0.17 per
share in the second year. The agent will be paid a 10% commission, payable in
cash, and up to 1,750,000 brokers' warrants exercisable at $0.15 per share in
the first year and $0.17 per share in the second year.
 
15.  DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
 
     Accounting practices under United States and Canadian generally accepted
accounting principles ("GAAP"), as they affect the Company, are substantially
the same, except for the following:
 
  (a) Unrealized gains for trading securities:
 
     Investments held principally for the purpose of selling them in the near
term are considered trading securities. Under Canadian GAAP, unrealized gains on
trading securities are not recorded in the accounts until realized. Under United
States GAAP, unrealized gains and losses for trading securities are included in
earnings. Accordingly, under Canadian GAAP, the gain on disposal of marketable
securities during 1996 would be recorded as $72,400, as under Canadian GAAP, the
$32,923 unrealized holding gain at December 31, 1995 would not have been
included in earnings in 1995.
 
  (b) Stock-based compensation:
 
     Canadian GAAP for stock-based compensation is similar to that provided in
APB Opinion No. 25 under United States GAAP (note 2(f)), although FAS 123
requires additional disclosure of the effects of accounting for stock-based
compensation using the fair value method (note 7(c)). Accordingly, under
Canadian GAAP, there would be no material differences in the consolidated
financial statements in respect of stock-based compensation.
 
  (c) Foreign currency translation:
 
     Canadian GAAP requires that non-current, foreign currency denominated
monetary items that have a fixed or ascertainable life extending beyond the end
of the following fiscal year should be translated into Canadian dollars at the
exchange rate in effect at the transaction date and adjusted to reflect the
current exchange rate at each balance sheet date, with any gain or loss relating
to the initial translation and balance sheet date adjustment being deferred and
amortized over the remaining life of the item. United States GAAP requires such
gains or losses to be included in operations in the period. Accordingly, under
Canadian GAAP, the foreign exchange gain of $85,875 relating to the revaluation
of the investment recorded at December 31,
 
                                      F-18
<PAGE>   46
                            BIOMETRIC SECURITY CORP.
                        (FORMERLY SONOMA RESOURCE CORP.)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        (EXPRESSED IN CANADIAN DOLLARS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
1998 would initially be recorded as a deferred credit on the consolidated
balance sheet and amortization of $9,551 would be recorded for the 1998 fiscal
year.
 
     A reconciliation of the effects of the differences between Canadian GAAP
and United States GAAP on the balance sheets and statements of operations and
deficit is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Total liabilities under United States GAAP..................  $299,037    $283,105
Deferred foreign exchange gain, net of amortization of
  $9,551....................................................    76,324          --
                                                              --------    --------
Total liabilities under Canadian GAAP.......................  $375,361    $283,105
                                                              ========    ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Shareholders' equity under United States GAAP...............  $3,708,455    $7,990,988
Adjustments:
     Deferral of foreign exchange gain......................     (85,875)           --
     Amortization of deferred foreign exchange gain.........       9,551            --
                                                              ----------    ----------
                                                                 (76,324)           --
                                                              ----------    ----------
Shareholders' equity under Canadian GAAP....................  $3,632,131    $7,990,988
                                                              ==========    ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                 1998           1997           1996
                                             ------------    -----------    -----------
<S>                                          <C>             <C>            <C>
Loss for the year under United States
  GAAP.....................................  $ (5,683,697)   $(2,199,895)   $(1,259,315)
Adjustments:
     Deferral of foreign exchange gain.....       (85,875)            --             --
     Amortization of deferred foreign
       exchange gain.......................         9,551             --             --
     Realized gain on disposal of trading
       securities..........................            --             --         32,923
                                             ------------    -----------    -----------
                                                  (76,324)            --         32,923
                                             ------------    -----------    -----------
Loss for the year under Canadian GAAP......    (5,760,021)    (2,199,895)    (1,226,392)
Deficit, beginning of year under Canadian
  GAAP.....................................    (4,396,703)    (2,196,808)      (970,416)
                                             ------------    -----------    -----------
Deficit, end of year under Canadian GAAP...  $(10,156,724)   $(4,396,703)   $(2,196,808)
                                             ------------    -----------    -----------
Loss per share under Canadian GAAP.........  $      (0.31)   $     (0.13)   $     (0.14)
                                             ============    ===========    ===========
</TABLE>
 
                                      F-19
<PAGE>   47
 
ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not Applicable.
 
                                    PART III
 
ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The following table sets forth the names, ages, positions and offices of
directors and officers of the Company.
 
<TABLE>
<CAPTION>
          NAME            AGE             POSITIONS AND OFFICES WITH THE COMPANY
          ----            ---             --------------------------------------
<S>                       <C>        <C>
Patrick W. McCleery       59         Chairman, President and Director
Chester Idziszek          51         Director
William A. Rand           56         Director
Wayne Johnstone           44         Director
Saundra Zimmer            36         Corporate Secretary
</TABLE>
 
MANAGEMENT OF THE COMPANY
 
     The Company has a total of five full and part-time employees and
consultants. The employees and consultants forming the management team and the
directors of the Company and their resumes are described briefly below.
 
Patrick W. McCleery, Chairman, President and Director
 
     Mr. McCleery is the Chairman, President and a Director of the Company and
is employed by the Company on a full time basis. Mr. McCleery devotes
approximately 100% of his time to the Company. Mr. McCleery has served the
Company as President since September 11, 1997, as Chairman since November 1,
1995 and as a Director since February, 1984. Mr. McCleery has been a director
and/or senior officer of several publicly listed junior resource issuers (these
companies included International All-North Resources Ltd. (formerly, All-North
Resources Ltd.) and Medsana Medical Systems Inc. (formerly, Northfork Ventures
Inc.)).
 
Chester Idziszek, Director
 
     Mr. Idziszek is a Director of the Company. Mr. Idziszek devotes
approximately 10% of his time to the Company. Mr. Idziszek has served the
Company in this capacity since March 1, 1995. Mr. Idziszek is also the President
and CEO and a director of Adrian Resources Ltd., and a director of: Oromine
Explorations Ltd., Braddick Resources Ltd., Cross Lake Minerals Ltd., Fresco
Developments Ltd. and Norcan Resources Ltd. He is also President and a director
of Madison Enterprises Corporation, Buffalo Diamonds Ltd., Hyperion Resources
Corp. and Maracote International Resources Inc. (formerly, Cherry Lane Fashion
Group). He was a director of Arequipa Resources Ltd. between July 1993 and
August 1996. In addition, from 1990 to 1992, he was the Chief Executive Officer,
President and a Director of Prime Equities International Corporation. Mr.
Idziszek was also President of Prime Explorations Ltd. from 1987 to 1990. In
addition, he has been a director and/or officer of numerous other junior mining
and resource companies trading on the Vancouver Stock Exchange (these companies
include Image Data International, La Plata Gold Corporation, Barrier Technology,
Haddington Resources Ltd., Arlo Resources Ltd., Minamerica Corporation and
Waseco Resources Inc. Of these companies, Adrian Resources Ltd., Madison
Enterprises Corporation and Maracote International Resources Inc. each have a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 (the "Exchange Act"). Mr. Idziszek has a B.Sc. (Geology) degree from
University of Waterloo (1971) and an M.Sc. (Appl. Min. Expl.) degree from the
University of Waterloo.
 
                                       25
<PAGE>   48
 
William A. Rand, Director
 
     Mr. Rand is a Director of the Company. Mr. Rand devotes approximately 10%
of his time to the Company. Mr. Rand has served the Company in this capacity
since November 1, 1995. Mr. Rand is a Director of Rand Edgar Investment Corp.,
an investment firm in Vancouver, B.C. which provides advisory services to the
Company. Prior to that, Mr. Rand was a partner in a law firm and practiced
securities law. Mr. Rand currently sits on the board of a number of publicly
traded resource companies (these companies include Citation Resources Inc.,
Consolidated Team Resources Corp., Dome Ventures, Inc., Broadlands Resources
Corp., International Curator Resources Ltd., International Uranium Corp.,
Lexacal Investment Corp., Lundin Oil AB, Red Sea Oil Corporation, Santa Catalina
Mining Corp., South Atlantic Resources Corp., Tanganyika Oil Co. Ltd., and Tenke
Mining Corp.). Of the companies for which Mr. Rand is a director, Broadlands
Resources Ltd., International Curator Resources Ltd., International Uranium
Corp., Lundin Oil AB and Tenke Mining Corp. each have a class of securities
registered pursuant to Section 12 of the Exchange Act. Mr. Rand has considerable
expertise in organizing and managing emerging public mineral resource
exploration companies. Mr. Rand has a B.Comm. degree from McGill University
(1963), an LLB degree from Dalhousie University (1966) and an LLM degree from
the London School of Economics (1977).
 
Wayne Johnstone, Director
 
     Mr. Johnstone is a Director of the Company. Mr. Johnstone devotes
approximately 70% of his time to the Company. Mr. Johnstone has served the
Company in this capacity since June 30, 1998 and was a Director of the Company's
predecessor, Sonoma Resource Corp., from August, 1989 to November, 1995. Mr.
Johnstone is a self-employed chartered accountant providing consulting and
accounting services to various publicly traded companies. Prior to that Mr.
Johnstone served as a senior accountant for Viceroy Resource Corp. and
controller of Baja Gold Inc. (a company which merged with Viceroy Resource
Corp.) from February, 1994 to December, 1996. Prior to that Mr. Johnstone served
as an accountant for Weston Mineral Services Ltd., a private British Columbian
company. Mr. Johnstone has a B.Comm. degree from The University of British
Columbia (1978).
 
Saundra Zimmer, Secretary
 
     Ms. Zimmer is the Secretary of the Company and is employed by the Company
on essentially a full time basis. Ms. Zimmer devotes approximately 75% of her
time to the Company. Ms. Zimmer has served the Company as Secretary since June
21, 1995 and was previously Secretary of the Company from August 1989 and May
1993. Ms. Zimmer has been the Administrative Assistant of the Company since
August 1, 1995 and before that from 1986 and 1990. From 1990 to 1995, she was
the Administrative Assistant of Rich Coast Resources Ltd. She has been a
director of Alantra Venture Corp. since March 1998, and Corporate Secretary of
Kaieteur Resource Corporation since November 1, 1995.
 
DIRECTORS AND SENIOR OFFICERS
 
     The following is a list of the current directors and senior officers of the
Company, their municipalities of residence, their current positions with the
Company and their principal occupations during the past five years:
 
<TABLE>
<CAPTION>
          NAME AND MUNICIPALITY                              PRINCIPAL OCCUPATION FOR
               OF RESIDENCE                                     PREVIOUS FIVE YEARS
          ---------------------                              ------------------------
<S>                                         <C>
Patrick W. McCleery(1)....................  Director of the Company since February, 1984; Chairman of
  Vancouver, B.C.                           the Company since November, 1995; President of the Company
  Chairman, President, Director             since September, 1997.
</TABLE>
 
                                       26
<PAGE>   49
 
<TABLE>
<CAPTION>
          NAME AND MUNICIPALITY                              PRINCIPAL OCCUPATION FOR
               OF RESIDENCE                                     PREVIOUS FIVE YEARS
          ---------------------                              ------------------------
<S>                                         <C>
Chester Idziszek..........................  Director of the Company since March, 1995; President of
  West Vancouver, B.C.                      Adrian Resources Ltd., a junior resource company located in
  Director                                  Vancouver, B.C. since April, 1993 and CEO since June, 1994;
                                            prior to that he was CEO, President and Director of Prime
                                            Equities International Corporation, an investment firm
                                            located in Vancouver, B.C., from June 1990 to December 1992
                                            and from February 1987 to June 1990 was President of Prime
                                            Explorations Ltd., the exploration arm for the Prime Group
                                            of Companies.
William A. Rand (1).......................  Director of the Company since November, 1995; he has been
  Vancouver, B.C.                           an investment banker with Rand Edgar Capital Corp., an
  Director                                  investment banking firm located in Vancouver, B.C., since
                                            October, 1992; prior to that he was a partner of Rand,
                                            Edgar and Sedun, a law firm located in Vancouver.
Wayne Johnstone (1).......................  Director of the Company since June, 1998 (and was a
  Bowen Island, B.C.                        Director of the Company's predecessor, Sonoma Resource
  Director                                  Corp., from August, 1989 to November, 1995); he has been a
                                            self-employed chartered accountant since January, 1997.
                                            Prior to that he was a senior accountant for Viceroy
                                            Resource Corp. and controller of Baja Gold Inc. (a company
                                            which merged with Viceroy Resource Corp.) from February,
                                            1994 to December, 1996. Prior to that he was an accountant
                                            for Weston Mineral Service Ltd. from January, 1990 to
                                            January, 1994.
Saundra J. Zimmer.........................  Secretary of the Company since June, 1995; prior to that
  Langley, B.C.                             she was Administrative Assistant of Rich Coast Resources
  Secretary                                 Ltd., a junior resource company located in Vancouver, B.C.
                                            from October, 1990 to August, 1995; prior to that she was
                                            Administrative Assistant of the Company.
</TABLE>
 
---------------
 
(1) Member of the Company's Audit Committee.
 
     Other than receiving stock options from time to time, the directors of the
Company are not compensated for serving as directors (see Item 11 -- Executive
Compensation -- Compensation of Directors and Remuneration of Senior Officers).
See Item 12 -- Security Ownership of Certain Beneficial Owners and Management
for particulars of the shares held by the directors and senior officers.
 
APPOINTMENT OF DIRECTORS
 
     The directors of the Company are elected by the shareholders at each annual
general meeting and typically hold office until the next annual general meeting
at which time they may be re-elected or replaced.
 
     The articles of the Company permit the directors to appoint directors to
fill any casual vacancies that may occur on the board. The articles also permit
the directors to add additional directors to the board between successive annual
general meetings so long as the number appointed does not exceed more than
one-third of the number of directors appointed at the last annual general
meeting. Individuals appointed as directors to fill casual vacancies on the
board or added as additional directors hold office as does any other director
until the next annual general meeting at which time they may be re-elected or
replaced.
 
                                       27
<PAGE>   50
 
  Section 16(a) Beneficial Ownership Reporting Compliance
 
     On February 2, 1999, Forms 3 were filed late for Patrick W. McCleery,
President and Director; William A. Rand, Director; Chester Idziszek, Director;
Wayne D. Johnstone, Director, and Saundra J. Zimmer, Corporate Secretary. On
February 26, 1999, Forms 4 were filed late for Patrick W. McCleery, President
and Director (reporting periods -- November 1998; December 1998) and Wayne D.
Johnstone, Director (reporting periods -- November 1998; January 1999). On
February 26, 1999, Forms 5 were filed late for Patrick W. McCleery, President
and Director; William A. Rand, Director; Chester Idziszek, Director; Wayne D.
Johnstone, Director, and Saundra J. Zimmer, Corporate Secretary.
 
MANAGEMENT OF BII
 
     As of March 1, 1998, BII had a total of 35 employees and consultants (See
"Personnel of BII" below). The directors and management team of BII and their
resumes are described briefly below.
 
Stephen Lubard, Chairman
 
     Dr. Lubard is Chairman and founder of BII. He is also one of the founders
and Chief Executive Officer of Arete. It was Dr. Lubard's efforts that took the
Veriprint from concept to a manufactured product in less than one year. In
addition to BII, Dr. Lubard formed Arete Image Software in 1996, a commercial
software company marketing to the entertainment industry. Dr. Lubard brings over
20 years of experience in managing highly complex projects and development of
software and systems for solving complex image processing problems. Dr. Lubard
holds a Ph.D. in aerospace engineering from the University of Maryland.
 
Robert Kamm, Chief Executive Officer
 
     Mr. Kamm is an experienced technology entrepreneur and has started two
previous technology companies. In 1988, Mr. Kamm co-founded a value-added
software company called Online Mortgage Documents ("Online") as the company's
President. Online provided a mortgage document preparation service similar to
CompuTax's tax preparation service for certified public accountants. In 1996,
Mr. Kamm co-founded VideoActive Corp. ("VideoActive") and served as the
company's Chief Operating Officer and Chief Financial Officer. VideoActive was
formed to create a digital Pay Per View ("PPV") movie/video service for
implementation within the cable industry. VideoActive is a
technology/entertainment company whose PPV movie service relies on unique
Digital Video Server technology internally developed by VideoActive. Mr. Kamm is
co-author of a software-oriented patent which is currently pending. Mr. Kamm
left VideoActive when the company retained an individual with an extensive
cable/entertainment background to take the company to the next level. Mr. Kamm
has an MBA in Finance from UCLA.
 
Parker Eagerton
 
     Mr. Eagerton is the Vice-President of Operations and has over 20 years
manufacturing experience. Mr. Eagerton's career includes experience with Alcatel
Corporation where he was responsible for establishing a plant location in Mexico
and most recently for Solectron Corporation, a turnkey manufacturer
("Solectron"). At Solectron, Mr. Eagerton was a Senior Manufacturing Advisor and
was responsible to Sun for the manufacturing strategy of its new fibre channel
product. Mr. Eagerton has expertise in the areas of devising cost effective
manufacturing strategies and assuring that products are engineered and designed
with manufacturing in mind.
 
David Gittelson
 
     Mr. Gittelson is Vice-President of Sales for BII and has over ten years'
experience selling sophisticated electronics systems to major organizations in
the security and telecommunication fields. He has worked closely with major
companies such as MCI, Sprint, ADT, Ameritech and Wells Fargo to tailor large
orders to their specifications.
 
                                       28
<PAGE>   51
 
Mel Wieting
 
     Mr. Wieting is Vice-President of Engineering for BII and has 15 years of
experience in software and hardware engineering. He worked for 14 years at
Lawrence Livermore National Laboratory, where he worked on and managed projects
involving the design and development of complex computer based electronic
systems. Mr. Wieting specializes in overall systems design and is an experienced
programmer.
 
PERSONNEL OF BII
 
     As of March 1, 1999, BII had a total of 35 full-time employees and
consultants. Of these, five (5) employees serve in a management and
administration capacity, thirteen (13) employees serve in a sales and marketing
capacity, sixteen (16) employees serve in an engineering and research and
development capacity, and one (1) employee serves in a manufacturing capacity.
These employees operate out of the following offices of BII:
 
<TABLE>
<CAPTION>
                                                                ENGINEERING,
                                        MGMT. &     SALES &      RESEARCH &
OFFICE LOCATION                         ADMIN.     MARKETING    DEVELOPMENT     MANUFACTURING   TOTAL
---------------                         -------    ---------    ------------    -------------   -----
<S>                                     <C>        <C>          <C>             <C>             <C>
Sherman Oaks, CA......................       4           5              9               0           18
Tracy, CA.............................       1           2              3               1            7
Tucson, AZ............................       0           0              4               0            4
Dayton, Ohio..........................       0           1              0               0            1
London, England and other sales
  staff...............................       0           5              0               0            5
                                         -----      ------         ------          ------       ------
Totals:...............................       5          13             16               1           35
                                         =====      ======         ======          ======       ======
</TABLE>
 
ITEM 11  EXECUTIVE COMPENSATION
 
     Set out below are particulars of compensation paid to the following persons
(the "Named Executive Officers"):
 
     (a)  the Company's chief executive officer;
 
     (b)  each of the Company's four most highly compensated executive officers
          who were serving as executive officers at the end of the most recently
          completed fiscal year and whose total salary and bonus exceeds US
          $100,000 per year; and
 
     (c)  any additional individuals for whom disclosure would have been
          provided under (b) but for the fact that the individual was not
          serving as an executive officer of the Company at the end of the most
          recently completed fiscal year.
 
     As at December 31, 1998, the end of the most recently completed fiscal year
of the Company, the Company had one Named Executive Officer, Patrick W.
McCleery, the Chairman of the Board, President and a Director of the Company.
 
  Summary Compensation Table
 
     The following table is a summary of compensation paid to the Named
Executive Officer for each of the Company's three most recently completed fiscal
years.
 
                                       29
<PAGE>   52
 
<TABLE>
<CAPTION>
                                              ANNUAL COMPENSATION              LONG TERM COMPENSATION
                                         -----------------------------   ----------------------------------
                                                                                  AWARDS            PAYOUTS
                                                                         ------------------------   -------
                                                                                      RESTRICTED
                                                                                        SHARES
                                                             OTHER       SECURITIES       OR
                                FISCAL                       ANNUAL        UNDER      RESTRICTED
NAME AND                         YEAR                     COMPENSATION    OPTIONS        SHARE       LTIP      ALL OTHER
PRINCIPAL POSITION              ENDED    SALARY   BONUS       ($)         GRANTED        UNITS      PAYOUTS   COMPENSATION
------------------              ------   ------   -----   ------------   ----------   ----------    -------   ------------
<S>                             <C>      <C>      <C>     <C>            <C>          <C>           <C>       <C>
Patrick W. McCleery...........   1998     0        0        $120,059      420,000          0         N/A         0
Chairman of the Board and        1997     0        0        $127,122            0          0         N/A         0
President                        1996     0        0        $117,196      359,761          0         N/A         0
</TABLE>
 
     The Company has no long-term incentive plans in place and therefore there
were no awards made under any long-term incentive plan to the Named Executive
Officer during the Company's most recently completed fiscal year. A "Long-Term
Incentive Plan" is a plan under which awards are made based on performance over
a period longer than one fiscal year, other than a plan for options, SARs (stock
appreciation rights) or restricted share compensation.
 
  Option Grants During the Most Recently Completed Fiscal Year
 
     The table below shows information regarding grants of stock options made to
Patrick W. McCleery in his capacity as Chairman, President and Director of the
Company during the fiscal year ended December 31, 1998.
 
<TABLE>
<CAPTION>
                                                                    MARKET VALUE                     POTENTIAL REALIZABLE
                                                                    OF SECURITIES                      VALUE AT ASSUMED
                        SECURITIES     % OF TOTAL                    UNDERLYING                      ANNUAL RATES OF STOCK
                          UNDER       OPTIONS/SARS                  OPTIONS/SARS                    PRICE APPRECIATION FOR
                       OPTIONS/SARS    GRANTED TO    EXERCISE OR     ON THE DATE                          OPTION TERM
                         GRANTED      EMPLOYEES IN    BASE PRICE      OF GRANT       EXPIRATION     -----------------------
NAME                       (#)        FISCAL YEAR    ($/SECURITY)   ($/SECURITY)        DATE          5%($)        10%($)
----                   ------------   ------------   ------------   -------------   -------------   ---------    ----------
<S>                    <C>            <C>            <C>            <C>             <C>             <C>          <C>
Patrick W.
  McCleery...........    420,000          23.5%         $0.23           $0.23       Jan. 28, 2001    $9,950       $20,286
</TABLE>
 
  Options Exercised During the Most Recently Completed Fiscal Year and Fiscal
Year End Option Values
 
     The following table summarizes the number of underlying Common Shares
acquired by the Named Executive Officer, pursuant to exercises of stock options
during the 12 months ended December 31, 1998, and the aggregate value realized
upon exercise and the number of Common Shares of the Company covered by
unexercised options as at December 31, 1998. Value realized upon exercise is the
difference between the fair market value of the underlying stock on the exercise
date and the exercise or base price of the option.
 
<TABLE>
<CAPTION>
                                                                                          VALUE OF UNEXERCISED IN THE
                        SECURITIES      AGGREGATE       UNEXERCISED OPTIONS/SARS AT          MONEY OPTIONS/SARS AT
                         ACQUIRED         VALUE              DEC. 31, 1998 (#)                 DEC. 31, 1998 ($)
                            ON           REALIZED      ------------------------------    ------------------------------
NAME                     EXERCISE          ($)         EXERCISABLE      UNEXERCISABLE    EXERCISABLE      UNEXERCISABLE
----                    -----------   --------------   -----------      -------------    -----------      -------------
<S>                     <C>           <C>              <C>              <C>              <C>              <C>
Patrick W. McCleery...       0              0            420,000                 0             N/A                 0
</TABLE>
 
     There are no compensatory plans or arrangements with respect to the Named
Executive Officer resulting from the resignation, retirement or other
termination of employment or from a change of control of the Company.
 
     The Company has no defined benefit or actuarial plans.
 
  Compensation of Directors
 
     The Company has no standard arrangement pursuant to which Directors are
compensated by the Company for their services in their capacity as Directors
other than the unissued Treasury shares reserved for the grant of Directors'
Stock Options. There has been no other arrangement pursuant to which Directors
were compensated by the Company in their capacity as Directors or for services
rendered as consultants or experts during the Company's fiscal year ended
December 31, 1998.
 
                                       30
<PAGE>   53
 
     During the Company's most recently completed fiscal year, 665,000 incentive
stock options were granted to directors of the Company (this number does not
include the 420,000 options granted to Mr. McCleery, which are referenced above)
and no incentive stock options were exercised by directors of the Company who
are not executive officers.
 
  Compensation Committee Interlocks and Insider Participation
 
     The Company currently has no compensation committee, nor any committee that
performs the function of a compensation committee. None of the Company's
officers or directors serves on a compensation committee, or a committee
performing similar functions, of another entity.
 
ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     To the knowledge of management of the Company as of March 1, 1999, no
person beneficially owns more than five percent (5%) of any class of the
Company's voting securities other than as set forth below. The following table
sets forth the total amount of any class of the Company's voting securities
owned by each of its executive officers and directors and by its executive
officers and directors, as a group, as of March 1, 1999.
 
<TABLE>
<CAPTION>
                                                               AMOUNT AND
                                                               NATURE OF
                                                               BENEFICIAL     PERCENTAGE
NAME AND ADDRESS(1)                                           OWNERSHIP(2)     OF CLASS
-------------------                                           ------------    ----------
<S>                                                           <C>             <C>
Patrick W. McCleery.........................................   4,335,958(3)      12.3%
Chester Idziszek............................................     335,000(4)       1.0%
William A. Rand.............................................   2,148,450(5)       6.4%
Wayne Johnstone.............................................     479,700(6)       1.5%
Saundra J. Zimmer...........................................      95,000(7)      *
                                                               ---------         ----
All executive officers and directors as a group (5
  persons)..................................................   7,394,108(2)      19.9%(2)
</TABLE>
 
---------------
 
 *  Less than one percent.
 
(1) The address for each of these persons is Suite 1940, 400 Burrard Street,
    Vancouver, British Columbia, Canada V6C 3A6.
 
(2) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission. In computing the number of shares owned
    by a person and the percentage ownership of that person, shares of Common
    Stock subject to options and warrants held by that person that are currently
    exercisable or exercisable within 60 days of March 1, 1999, are deemed
    outstanding. Such shares, however, are not deemed outstanding for the
    purposes of computing the percentage ownership of any other person. The
    Company makes no representation that any of these options or warrants will
    be exercised.
 
(3) Includes currently exercisable options and warrants, and options and
    warrants exercisable within sixty days hereof to purchase an aggregate of
    920,000 shares as to Mr. McCleery and 1,823,000 shares as to Mrs. McCleery,
    with respect to which Mr. McCleery disclaims any beneficial ownership. Also
    includes 933,000 shares beneficially owned by Mrs. McCleery, with respect to
    which Mr. McCleery disclaims any beneficial ownership. The Company makes no
    representation that any of these options or warrants will be exercised.
 
(4) Includes currently exercisable options and options exercisable within sixty
    days hereof to purchase an aggregate of 285,000 shares. The Company makes no
    representation that any of these options will be exercised.
 
(5) Includes currently exercisable options and options exercisable within sixty
    days hereof to purchase an aggregate of 285,000 shares. Also includes
    901,950 shares and, in addition, warrants currently exercisable to purchase
    961,500 shares, beneficially owned by Rand Edgar Capital Corp., a private
    British Columbia company, which is owned by the wives of Mr. Rand and Brian
    Edgar and of which Mr. Rand was a director, with respect to which Mr. Rand
    disclaims any beneficial ownership. The Company makes no representation that
    any of these options or warrants will be exercised.
 
(6) Includes currently exercisable options and warrants, and options and
    warrants exercisable within sixty days hereof to purchase an aggregate of
    291,050 shares. Also includes 10,000 shares owned by
 
                                       31
<PAGE>   54
 
    Mrs. Johnstone, with respect to which Mr. Johnstone disclaims any beneficial
    ownership. The Company makes no representation that any of these options or
    warrants will be exercised.
 
(7) Includes currently exercisable options and options exercisable within sixty
    days hereof to purchase an aggregate of 95,000 shares. Ms. Zimmer does not
    own any shares of the Company's Common Stock. The Company makes no
    representation that any of these options will be exercised.
 
     To the knowledge of management of the Company, there are no arrangements
the operation of which may at a subsequent date result in a change of control of
the Company.
 
ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Certain directors of the Company are officers and/or directors of, or are
associated with, other publicly traded companies and such associations could
give rise to conflicts of interest from time to time. Given that most of these
companies are natural resource companies, such conflicts seem unlikely.
Nevertheless, the directors are required by law to act honestly and in good
faith with a view to the best interests of the Company and its shareholders and
to disclose any personal interest which they may have in any material
transaction which is proposed to be entered into with the Company and to abstain
from voting as a director for the approval of any such transaction.
 
     The only material transactions between the Company or any of its
subsidiaries and any director, senior officer, principal shareholder or any
associates or affiliates of the foregoing, within the past fiscal year, are as
follows:
 
        December 29, 1998 Private Placement
 
          Patrick W. McCleery, Wayne Johnstone, Rand Edgar Capital Corp.
     ("RECC") and Wendy McCleery, wife of Patrick W. McCleery, agreed to
     participate in the offering which commenced on December 29, 1998 (see Item
     5 above) as follows: Mr. McCleery subscribed for 500,000 Units, Mr.
     Johnstone for 96,050 Units, Mrs. McCleery for 823,000 Units and RECC for
     661,500 Units.
 
        RECC Loan
 
          During 1998, RECC loaned the Company a total of $250,000. The loan is
     unsecured, non-interest bearing and was due on December 26, 1998. A total
     of $99,225 of the loan was repaid on December 29, 1998, and the balance of
     the loan of $150,775 was repaid subsequent to December 31, 1998.
 
          The Company also allotted 65,789 shares at a deemed price of $0.19 per
     share at December 31, 1998, as allowed for under the rules of the Vancouver
     Stock Exchange, as consideration for the loan.
 
        June 12, 1998 Acquisition of Interest in BII
 
          The BII acquisition was arranged by RECC, a private company controlled
     by the spouses of Brian Edgar and William Rand. Mr. Rand is a director of
     the Company. RECC originally entered into a memorandum of understanding
     with BII and with Arete dated March 18, 1998, amended and replaced May 20,
     1998 (collectively the "MoA"). RECC assigned its interest in the MoA to the
     Company on May 21, 1998 in exchange for a fee of US$145,000, plus
     reimbursement of its expenses. As of June 12, 1998, RECC had elected to
     take its fee in the form of 715,575 common shares of the Company to be
     issued at a price of $0.30 per share. These shares were to be issued in pro
     rata tranches in accordance with the tranche advances being made by the
     Company to BII. These finders fee shares were actually issued in the form
     of special warrants at a price of $0.30 per special warrant. Each special
     warrant is exercisable without the payment of any additional consideration
     into one common share of the Company. As at December 31, 1998, the Company
     had issued 250,450 shares to RECC under the terms of this agreement.
 
                                       32
<PAGE>   55
 
        May 15, 1998 Private Placement
 
          Insiders of the Company who participated in the May 15, 1998 Private
     Placement (see Item 5 above) were Wendy McCleery (as to 1,000,000 special
     warrants), RECC (as to 300,000 special warrants) and Wayne Johnstone (as to
     100,000 special warrants).
 
        Consulting Fees
 
          During the fiscal year ended December 31, 1998, a total of $36,561 was
     paid to Rand Edgar Investment Corp. and Wayne Johnstone for consulting
     fees. Rand Edgar Investment Corp. is owned equally by William A. Rand, a
     director of the Company, and Brian Edgar.
 
          As of December 31, 1998, there were no management contracts between
     the Company and any of its officers or directors, and no officer or
     director was indebted to the Company.
 
                                       33
<PAGE>   56
 
                                    PART IV
 
ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a)1. and (a)2.  Financial Statements
 
     This information is contained in Item 8 of this Annual Report on Form 10-K.
 
(a)3.  Exhibits
 
      *3.1   Registrant's Articles of Continuance into the State of Wyoming.
 
      *3.2   Registrant's By-Laws, as amended.
 
      *3.3   Registrant's Articles of Amendment re Authorized Stock.
 
     *10.1   BII Agreement, dated June 12, 1998.
 
     *10.2   Inlet Resources, Ltd. Agreement, dated January 21, 1999.
 
      21     Subsidiaries of the Registrant.
 
     *27.1   Financial Data Schedule.
 
(b)  Reports on Form 8-K
 
    No reports on Form 8-K were filed by the Company during the three months
    ended on December 31, 1998.
 
(c)  Financial Data Schedule.
 
* Previously filed.
 
                                       34
<PAGE>   57
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          BIOMETRIC SECURITY CORP.
 
                                          By:    /s/ PATRICK W. MCCLEERY
                                            ------------------------------------
                                            Name:  Patrick W. McCleery
                                            Title:  President
 
Date:  May 3, 1999
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons, being a majority
of the Directors of the registrant, on behalf of the registrant and in the
capacities and on the dates indicated.
 
<TABLE>
<C>                                                      <S>
 
             By: /s/ PATRICK W. MCCLEERY                 Patrick W. McCleery, Chairman, President, and
  -------------------------------------------------      Director
                 Date:  May 3, 1999
 
              By: /s/ CHESTER IDZISZEK                   Chester Idziszek, Director
  -------------------------------------------------
                 Date:  May 3, 1999
 
               By: /s/ WAYNE JOHNSTONE                   Wayne Johnstone, Director
  -------------------------------------------------
                 Date:  May 3, 1999
 
               By: /s/ WILLIAM A. RAND                   William A. Rand, Director
  -------------------------------------------------
                 Date:  May 3, 1999
</TABLE>
 
                                       35
<PAGE>   58
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBITS
--------
<C>       <S>
 
  *3.1    Registrant's Articles of Continuance into the State of
          Wyoming.
  *3.2    Registrant's By-Laws, as amended.
  *3.3    Registrant's Articles of Amendment re Authorized Stock.
 *10.1    BII Agreement, dated June 12, 1998.
 *10.2    Inlet Resources, Ltd. Agreement, dated January 21, 1999.
   21     Subsidiaries of the Registrant.
 *27.1    Financial Data Schedule.
</TABLE>
 
---------------
 
* Previously filed.